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RAILWAY   PROBLEMS   IN    CHINA 


BY 

MONGTON  CHIHjHSU,  B.  S.,  M.A. 


SUBMITTED  IN  PARTIAL  FULFILMENT  OF  THE  REQUIREMENTS 
FOR  THE  DEGREE  OF  DOCTOR  OF  PHILOSOPHY 

IN   THE 

Faculty  of  Political  Science 
Columbia  University 


0    9  6 


NEW  YORK 
1915 


RAILWAY   PROBLEMS   IN    CHINA 


BY 

MONGTON  CHIH  HSU,  B.  S.,  M.A. 


SUBMITTED  IN  PARTIAL  FULFILMENT  OF  THE  REQUIREMENTS 
FOR  THE  DEGREE  OF  DOCTOR  OF  PHILOSOPHY 

IN    THE 

Faculty  of  Political  Science 
Columbia  University 


NEW  YORK 
1915 


Copyright,  1915 

BY 

The  Faculty  of  Political  Science  of 
Columbia  University,  New  York 


H 


PREFACE 

The  purpose  of  this  work  is  to  present  the  important 
economic  and  political  problems  of  railway  development 
in    China.      In    the    body    of    the    treatise    no    attempt 
has    been    made    to    set    forth,    in    detail,    the    technical 
and    administrative    questions    involved    in    the    work    of 
building  and  operating  railways.     In  view  of  the  fact  that 
most  of  the  railways  in  China  have  been  built  with  foreign 
capital,  the  author  has  attempted  to  analyze  carefully  the 
railway  loan  agreements  in  order  to  throw  some  light  upon 
the  preserif  "status  ot  railway  management  and  construction. 
^    As  the  railway  has  recently  occupied  the  center  of  interest 
e£    in  the  internal  and  foreign  politics  in  the  country,  a  great 
part  of  the  material  of  the  treatise  is,  therefore,  focussed 
upon  the  political  phases  of  the  railway  situation. 
=>         The  author  desires  to  acknowledge  his  indebtedness  to 
Professor  Edwin  R.  A.  Seligman  for  his  invaluable  instruc- 
tion and  advice  in  the  conduct  of  the  work.     Acknowledge- 
S    ments  are  due  also  to  Professor  H.  R.  Mussey,  who  kindly 
2     read  the  treatise  in  proof  and  made  many  useful  criticisms 
8    and  suggestions,  and  to  Mr.  Hugh  W.  Robertson  for  his 
assistance  in  adapting  the  manuscript  for  the  press. 

M.  C.  H. 
233]  5 


27 


CONTENTS 

PACK 

CHAPTER  I 
Introduction n 

FIRST  PERIOD 

CHAPTER  II 
A  Discouraging  Beginning 19 

SECOND  PERIOD 

CHAPTER  III 
The  Struggle  for  Railway  Concessions 

i.  Foreign  Political  and  Strategical  Railways 28 

ii.  Railways  Granted  to  Foreign  Capitalists 34 

iii.  Railway  Spheres  of  Interest 45 

CHAPTER  IV 

The  Foreign  Railways 

i.  The  Chinese  Eastern  Railway 52 

ii.  The  Shantung  Railway 56 

iii.  The  Yunnan  Railway 58 

CHAPTER  V 
Railways  Built  with  Foreign  Capital 

A.  The  British  Interests: 

i.  The  Chinese  Government  Railways  of  North  China  ....  65 

ii.  The  Shanghai-Nanking  Railway 69 

iii.  The  Tao-Ching  Railway 71 

B.  The  Belgian,  French  and  Russian  Interests: 

i.  The  Peking-Hankow  Railway 74 

235]  7 


8  CONTENTS  [236 

PAGE 

ii.  The  Peinlo  Railway 78 

iii.  The  Cheng-Tai  Railway      81 

C.  The  American  Interests. 

THIRD  PERIOD 

CHAPTER  VI 
Provincial  and  Private  Enterprises 

i.  The  Hsinning  Railway 92 

ii.  The  Kiukiang-Nanchang  Railway 93 

iii.  The  Fukien  Railway 94 

iv.  The  Shanghai-Hangchow-Ningpo  Railway 95 

v.  The  Szechuan-Hankow  Railway 99 

CHAPTER  VII 
The  Railways  Built  by  the  Chinese  Government 103 

CHAPTER  VIII 
Nationalization  of  Railways 

i.  The  Conflicts  of  Interests 108 

ii.  The  Government's  Railway  Policy 120 

CHAPTER  IX 
International  Co-operation 

i.  The  Canton-Kowloon  Railway 133 

ii.  The  Tientsin-Pukow  Railway • .  135 

iii.  The  Hukuang  Railways 140 

iv.  The  Lung-Tsuing-U-Hai  Railway 154 

v.  The  Sinyang-Pukow  Railway 157 

vi.  The  Shasi-Shingyifu  Railway 159 

CHAPTER  X 
The  Manchurian  Railway  Problems 163 

CHAPTER  XI 
Conclusion 176 


Approximate  Equivalents  of  Chinese  Currency, 
Weights  and  Measures 

i. — Money 

Until  the  new  National  Coinage  Act  was  promulgated  by 
a  Presidential  Mandate  on  Feb.  27,  1914,  the  monetary  unit 
commonly  used  was  the  "  tael."  It  fluctuated  greatly  in 
value.  The  Haikwan  (customs)  tael  was  not  a  coin  but  a 
weight  in  silver  by  means  of  which  duties  were  paid  to  the 
Maritime  Customs.  The  average  exchange  value  of  the 
Haikwan  tael  during  recent  years  has  been  as  follows : 
1907,  79  cents  gold;  1908,  65  cents;  1909,  63  cents;  19 10, 
66  cents;  1912,  67  cents. 

In  June,  1912,  one  Haikwan  tael  = 
2s.  9d. 
3.47  francs. 
2.81  marks. 
0.67  gold  dollar. 
1.50  yen  (Japanese). 
1.50  Mexican  dollar. 

ii. — Weights 

I  catty  =15/}  lbs.  or  604.53  grammes. 

I  picul  =  i33J<3  lbs.  or  60.453  kilogrammes. 

iii. — Length 

1  ch'ih  =  i4.i  inches  or  0.358  metres. 

1  li       =  about  one-third  of  a  mile   (or  theoretically  2,115   feet  or 
two-fifths  of  a  mile). 

iv. — Area 
1  mow  (Shanghai)  =  one-sixth  of  an  English  acre. 

v. — Capacity 

1  tow  (for  tribute)  =629  cubic  inches  (10.31  litres). 

237]  9 


CHAPTER  I 

Introduction 

In  a  country  so  vast  in  territory  and  so  dense  in  popula- 
tion as  China  it  is  natural  that  arterial  communication  is 
necessary.  Serious  efforts  have  been  made  by  China's 
rulers  to  connect  the  four  quarters  of  the  country  by  both 
land  and  water  routes.  Therefore,  long  before  the  intro- 
duction of  the  steamer  and  railroad  into  China,  intercom- 
munication had  already  taken  place  between  the  different 
parts  of  the  country,  even  those  most  remote.  In  olden 
times  when  the  country  was  flourishing  long  j:anals  and 
grand  highways  were  usually  kept  in  good  order.  Until 
very  recently,  however,  waterways  and  river  embankments 
had  been  neglected  and  repairs  on  roads  had  been  practically 
abandoned.  Now  they  are  almost  impassable.  At  the 
present  there  are  still  many  old  trade  routes  in  the  country 
and  owing  to  the  small  mileage  of  railroads  in  China  old 
methods  of  communication  and  transportation  are  still 
maintained. 

Land  Transportation.  The  chief  means  for  conveying 
travelers  on  land  are  the  sedan  chair,  the  mule  litter,  the 
cart  (used  only  in  the  North),  horses,  mules  and  donkeys. 
The  horse  is  most  expeditious,  while  the  sedan  chair  is  most 
comfortable  but  most  expensive.  Commodities  are  carried 
by  barrows  (sometimes  also  used  for  travelers  and  mostly 
used  in  the  South),  pack  horses,  mules,  donkeys,  camels  and 
for  short  distance,  oxen.  A  horse  or  mule  will  carry  240 
to  320  pounds.  Camels  will  carry  still  more,  but  are  used 
239]  11 


I2  RAILWAY  PROBLEMS  IN  CHINA  [240 

only  in  the  North.  A  wheelbarrow  will  carry,  as  a  rule, 
180  to  300  "  catties  "  (240  to  400  pounds),  and  will  make 
about  16  miles  a  day.  Carts  can  carry  more  than  these 
wheelbarrows. 

There  are  many  trade  routes  on  land.  The  principal 
ones  are  those  which  connect  the  big  cities,  and  these  cities, 
in  turn,  with  the  capital.  From  Peking  several  highways 
branch  in  various  directions  leading  to  Mongolia,  Man- 
churia, Central  Asia,  the  west  and  the  southwestern  parts 
of  China  proper.  The  trade  route  from  Peking  to  Man- 
churia has  been  recently  displaced  by  a  railroad.  It  takes 
months  to  travel  overland  from  Peking  to  the  northern, 
western  and  southern  corners  of  the  country.  From  Nan- 
kow  Pass,  north  of  Peking,  there  is  a  caravan  route  extend- 
ing to  the  North  and  Northwest.  Journeys  are  generally 
divided  into  stages  of  about  thirty  miles  each.  In  the 
South  the  ordinary  road  is  a  mere  path  generally  defined 
by  neither  ditches  nor  hedges,  winding  through  the  paddy 
fields  or  over  the  uplands.  In  the  North,  where  carts  are 
used,  it  is  a  common  thing  to  see  a  new  track  cut  right 
across  a  field  of  growing  wheat  in  spite  of  the  efforts  of  the 
owner  to  prevent  it.  There  are  traces  in  many  places  of 
ancient  pavements,  but  these  have  almost  wholly  disap- 
peared, and  the  road  is  simply  a  bank  of  earth. 

Water  Transportation.  Nowadays  a  number  of  steam- 
boat companies  are  organized  and  run  steamers  regularly 
on  the  navigable  rivers,  canals  and  lakes,  and  even  along 
the  sea  coast.  Where  steam  is  prohibited,  native  "  slipper  " 
boats,  house  boats  and  junks  of  various  sizes  are  used.  For 
coast  and  sea-going  work,  junks  of  large  and  strong  propor- 
tions with  large  sails  are  still  occasionally  seen. 

The  Yangtsze,  which  is  navigable  for  some  2000  miles, 
the  Hwai,  the  Han,  the  West  and  the  Peiho  rivers  are  great 
arteries  of  commerce.     The  Grand  Canal  is  now  practically 


241]  INTRODUCTION  l^ 

worthless  for  transportation  from  the  South  to  the  North, 
although  it  was  once  the  chief  route  of  traffic.  Steam  navi- 
gation along  the  coast  takes  its  place  now.  Some  sections 
of  the  Grand  Canal  and  the  Hoangho  are  still  useful  but 
only  for  local  traffic. 

In  the  maritime  provinces  and  the  Yangtsze  Valley 
waterways  are  numerous.  The  perfect  network  of  water- 
ways, partly  natural  and  partly  artificial,  in  Kiangsu,  in 
connection  with  the  Yangtsze  River  and  the  Grand  Canal, 
furnishes  cheap  and  comfortable  communication  with  all 
parts  of  that  province.  There  are  lakes  of  considerable 
size  by  which  communication  is  carried  on  with  the  differ- 
ent provinces  in  Central  China.  The  Wuhu,  the  Taihu, 
the  Poyang,  the  Tungting  and  other  lakes,  with  the  water- 
ways branching  in  various  directions  from  them,  furnish 
good  water  communication  with  the  adjoining  regions. 

The  costs  of  travel  and  of  freightage  vary  from  year 
to  year  with  the  means  of  transportation,  with  the  seasons 
of  the  year  and  differ,  also,  in  different  parts  of  the  coun- 
try. Land  transportation  is  usually,  as  in  other  countries, 
more  expensive  than  water  transportation.  Competition, 
however,  is  a  decisive  factor.  No  matter  whether  it  be  be- 
tween the  same  kind  or  different  kinds  of  conveyance,  or 
between  water  and  land  routes,  where  there  is  keen  com- 
petition, passenger  tariffs  and  freight  rates  are  usually  much 
lower. 

Over  these  trade  routes  and  by  the  old  means  of  trans- 
portation mentioned  above,  Chinese  produce  and  merchan- 
dise were  carried  from  one  part  to  another  of  the  country 
long  before  the  Occidental  world  became  civilized.  But  as 
China,  owing  to  her  geographical  position  and  her  endow- 
ment of  abundant  resources  for  self-support  was  absolutely 
cut  off  from  the  rest  of  the  world  for  so  long  a  time  past, 
no  impetus  was  given  to  her  to  develop  fully  her  systems 


I4  RAILWAY  PROBLEMS  IN  CHINA  [242 

of  communication.  On  the  contrary,  internal  communi- 
cation has  been  gradually  falling  into  greater  and  greater 
neglect.  The  defective  condition  of  communication  kills 
trade  on  its  way  inland  and  paralyzes  the  authority  of 
Peking  a  few  hundred  miles  from  the  capital.  The  grow- 
ing weakness  of  the  Peking  Government  has,  for  a  long 
time  past,  been  becoming  more  and  more  apparent  to  the 
people  and  the  officials,  whose  confidence  had  been  com- 
pletely shaken,  even  before  the  shock  of  recent  political 
events.  Absence  of  communication  means  failure  of  con- 
trol, lack  of  power,  want  of  grip,  causes  which  chiefly  ex- 
1  plain  the  frequent  occurrence  of  rebellions. 

On  the  other  hand,  foreign  nations  have,  one  after  an- 
other, closed  in  upon  China  both  by  land  and  by  sea.  The 
expansion  of  foreign  commerce,  the  lust  for  territorial  ac- 
quisition and  the  intense  international  struggle  for  power 
and  influence  throughout  the  world,  animated  by  modern 
national  imperialism,  have  naturally  resulted  in  demands 
for  concessions  of  territories  for  coal  stations  and  commer- 
cial ports  and  for  extra-territorial  jurisdiction  over  the 
places  where  citizens  or  subjects  of  the  respective  countries 
reside.  Above  all,  they  have  demanded  concessions  of 
rights  for  construction  and  even  control  of  railways  in  or- 
der to  increase  their  own  resources  through  the  absorption 
or  exploitation  of  the  undeveloped  but  vast  and  wealthy 
realm  of  the  Celestial  Empire.  Several  foreign  nations, 
principally  Russia,  Germany,  France,  Great  Britain  and  later, 
Japan,  have  taken  an  aggressive  part  in  this  movement. 
Concession  after  concession  was  forced  out  of  the  hands 
of  the  Peking  Government.  Railway  concessions,  stand- 
ing above  all  others  in  value,  have  been  and  are  still  most 
eagerly  sought  and  retained  because  railways  can  be  used 
politically  to  strengthen  the  concessionaires'  hold  on  China 
as  well  as  to  develop  commercially  their  concessions   of 


243]  INTRODUCTION  I5 

mines  and  other  enterprises.  In  modern  times  the  railway 
is  the  best  and  most  effective  instrument  for  colonization 
and  for  accomplishing  the  policy  of  imperial  expansion.  It 
is  no  wonder,  therefore,  that  international  politics  in  China 
are  mostly  railway  politics.      / 

Keeping  this  in  mind,  one  will  not  be  surprised  to  find 
that  a  foreign  railroad  loan  in  China  is  quite  different  from 
that  in  the  United  States  and  in  many  other  countries.  In 
the  United  States  or  elsewhere  a  railroad  loan  raised  abroad 
is  commonly  regarded  as  a  commercial  transaction  between 
two  parties,  while  in  China  it  means  a  political  issue  between 
two  or  more  nations.  To  present  the  different  important 
phases  of  the  railway  problems  in  China,  it  is  advisable, 
however,  to  trace  the  various  stages  of  their  development  in 
connection  with  the  local  growth  of  the  railway  itself.  The 
history  of  railway  development  in  China  may  be  divided 
into  three  periods : 

(i).  The  first  period  began  in  1863  and  ended  in  1894. 
At  the  very  beginning  the  first  attempt  to  introduce  the 
"  iron  highway  "  into  China  was  discouraging,  not  unlike 
what  had  been  experienced  in  the  United  States,  England 
and  elsewhere,  owing  to  the  opposition  of  the  conservative 
class  of  the  people.  Later  on,  however,  a  small  number  of 
influential  and  enlightened  officials,  who  realized  the  im- 
portance of  the  railway  to  the  prosperity  of  the  country, 
succeeded,  in  the  face  of  manifold  obstacles  and  in  spite  of 
endless  discouragement,  in  creating  the  first  instalment  of 
the  railway  system  now  known  as  the  Chinese  Government 
Railway  of  North  China. 

(2).  The  second  period,  extending  from  1895  to  1905, 
was  marked  by  the  "  Battle  for  Concessions  "  in  which  the 
struggle  for  the  right  of  way  for  railway  construction  and 
for  financing  was  the  most  notable  feature.  Before  this 
period  no  railway  concession  had  been  granted  to  foreigners. 


j6  RAILWAY  PROBLEMS  IN  CHINA  [244 

After  1895  they  were  given  so  many  concessions  that  the 
Boxer  Trouble  was  practically  precipitated  as  a  result.  In 
this  period  we  find  that  notorious  terms  were  stipulated 
in  railway  loan  agreements. 

(3).  The  third  period,  commencing  during  the  Russo- 
Japanese  War  and  extending  to  the  present,  is  characterized 
by  the  appearance  of  native  private  enterprises,  the  conflict 
of  interests  between  the  provincial  companies  and  the  Cen- 
tral Government  due  to  the  adoption  of  the  Nationalization 
Policy,  the  financial  combination  of  some  foreign  syndicates, 
and  the  settlement  of  the  question  of  control  to  a  certain 
extent  in  regard  to  loan  funds.  During  this  period 
railway  loans  were  contracted  on  more  favorable  terms  than 
in  the  last  period. 


1 


c 


"^ 


r 


FIRST  PERIOD 


CHAPTER  II 
A  Discouraging  Beginning 

In_i863li  twenty-seven  foreign  firms  sent  a  petition  to  J 
Li  Hung-chang,  then  governor  of  Kiangsu,  applying  for 
the  concession  of  the  right  to  establish  a  line  between 
Soochow  and  Shanghai.  Their  petition,  however,  was  re- 
ceived with  decided  disapprobation,  and  the  scheme  was 
finally  abandoned.  At  about  the  same  time,  Sir  Macdonald 
Stephenson  drew  up  a  comprehensive  scheme  )  for  railway 
construction  in  China  and  presented  it  to  the  Manchu  Gov- 
ernment.    His  document  for  some  reason  was  pigeon-holed. 

The  next  move  emanated  from  Shanghai.  On  the  appli- 
cation of  Messrs.  Jardine,  Matheson  &  Co.  to  construct  an 
ordinary  road  from  Shanghai  to  Woosung,  about  twelve 
miles  down  the  Whangpoo  River,  a  permit  was  issued  in 
which  it  had  been  made  particularly  plain  upon  both  sides 
that  only  animals  could  be  used  for  motive  power.  The 
employment  of  steam  was  specifically  forbidden.  But  in 
1875  when  the  road  was  completed,  the  company,  ignoring 
the  protest  of  the  natives,  laid  down  upon  it  a  two-foot-six- 

1  Raihuays  in  China,  by  Sir  Macdonald  Stephenson,  1864.  Stephen- 
son took  Hankow  as  a  starting-point  and  proposed  to  construct 
lines  eastward  to  Shanghai  and  westward  through  the  provinces  of 
Yunnan  and  Szechuen  to  India.  While  a  line  was  to  run  from  Han- 
kow southward  to  Canton,  another  line  from  Chinkiang  to  Peking  via 
Tientsin  was  projected.  It  was  also  proposed  to  connect  Ningpo  with 
Shanghai,  and  to  carry  a  line  from  Soochow  to  the  province  of  Fukien. 
In  addition  to  these  lines  a  connection  between  Canton  and  the  pro- 
jected line  to  India  was  suggested. 

247]  19 


20  RAILWAY  PROBLEMS  IN  CHIXA  [248 

inch  gauge  railway  and  used  a  locomotive  to  haul  the  cars. 
The  people  in  the  neighborhood  of  the  line  became  greatly 
excited.  Petition  after  petition  was  sent  in  to  the  pro- 
vincial authorities  asking  that  the  company  keep  its  promise. 
^li  was  not  until  a  laborer  was  run  over  and  killed  by  the 
^  locomotive  that  the  Central  Government  directed  the  pro- 
vincial authorities  to  have  the  concession  canceled.  After 
some  troublesome  diplomatic  negotiations  this  first  railway 
was  repurchased  by  China  in  1877.  The  closing  chapter 
of  the  history  of  this  enterprise  points  to  the  tearing-up  of 
the  track  and  the  shipment  of  the  rolling  stock,  rails  and 
'  sleepers,  to  the  Island  of  Formosa.  The  wretchedly  advised 
course  of  action  taken  by  the  company  could  only  delay  the 
introduction  of  the  railway  into  China  for  a  short  time,  be- 
cause a  few  years  later  a  successful  attempt  to  introduce 
the  "  iron  horse  "  was  made  in  the  North. 

In  1878,  Li  Hung-chang,  now  Viceroy  of  Chihli,  be- 
came interested  with  Mr.  Tong  King-sing  in  establishing 
a  colliery  in  Tangshan.  The  Chinese  Engineering  and 
Mining  Company  was  then  formed.  From  this  point  to 
Pehtang,  the  nearest  point  for  shipping  coal  by  wrater  routes, 
was  about  thirty  miles.  The  question  of  transportation 
became  vital  to  the  success  of  the  company.  A  canal 
was  then  constructed  from  the  colliery  to  Lutai,  the  nearest 
point  on  the  Pehtang  River.  There  were  seven  miles  be- 
tween Hsukochung,  on  the  end  of  the  canal,  and  the  colliery ; 
and  to  cover  this  distance  .3.  mule  tramway  of  standard 
gauge  was  built  in  1880  after  a  hard  fight  by  the  resident 
engineer,  Mr.  C.  \Y.  Kinder.  After  the  completion  of  this 
tramway  a  determined  effort  was  made  to  introduce  the 
railroad  into  China.  Without  consulting  Peking,  Mr. 
Kinder  built  a  locomotive,  christened  "  The  Rocket  of 
China,"  on  June  9,  1881.  The  locomotive  was  made  out 
of  old  iron  and  steel  picked  up  at  the  mines  and  a  portable 


249]  A  DISCOURAGING  BEGIN X IX G  21 

winding  engine.  After  inducing  the  authorities  to  with- 
draw their  objection  to  its  use  Mr.  Kinder  put  the  "  Rocket  " 
into  commission  on  construction  work. 

The  initial  venture  of  the  railway  from  Hsukochung  was  , 
a  success  and  two  additional  locomotives  were  secured  in 
1882.  Mr.  Kinder  then  began  to  urge  the  extension  of  the 
tramway  tcTTTuTai  and  "succeeded  with  the  assistance  of 
Viceroy  Li  Hung-chang,  now  impressed  with  the  value  of 
the  railway.  TheKaiping  Railway  Company  was  then  / 
formed  with  a  capital  of  about  $500,000  (Mex.)  to  take  over 
the  tramway  and  carry  out  the  construction  of  the  exten- 
sion. Dr.  Wu  Ting-fang  was  appointed  to  manage  the 
company.  Work  was  begun  at  Hsukochung  in  1886  and 
six  months  later  it  was  completed.  At  the  same  time  some 
rolling  stock,  including  an  American  locomotive  and  forty 
ten-ton  coal  cars,  was  purchased  from  the  United  States. 

The  experiments  of  these  two  initial  railroads  had,  with- 
out ^doubt,  an  important  educational  effect.  This  can  be 
seen  in  some  of  the  memorials  *  presented  to  the  Throne  by 
some  of  the  learned  officials.  The  testamentary  declaration 
in  favor  of  railroads,  warships  and  other  foreign  appliances, 
as  an  essential  means  of  enabling  China  to  keep  abreast  of 
other  civilized  nations,  written  by  Viceroy  Tso  Tsung-tang, 
the  suppressor  of  the  Mohammedan  rebellion  in  Kansuh 
and  Turkestan,  helped  greatly  to  hasten  the  acknowledg- 
ment of  the  importance  of  Chinese  railways. 

But  the  chief  impulse  which  led  to  the  official  acceptance 
of  the  modern  system  of  transportation,  as  an  institution, 
was  supplied  by  the  war  with  France  in  [884.  The  diffi- 
culty of  sending  troops  to  Tongking  convinced  the  Govern- 
ment of  its  essential  value  as  a  means  of  military  transport. 

^ce  Knang-su  Choncj-yau  (The  Emperor  Kuang-su's  State  Papers), 
vols,  xi-xv,  inclusive. 


22  RAILWAY  PROBLEMS  IN  CHINA  [250 

By  1887  the  Kaiping  line  was  completed  to  Lutai;  and 
Li  Hung-chang  had  a  memorial  before  the  Imperial  authori- 
ties urging  the  extension  of  the  line  to  Tongku  and  on  to 
Tientsin  on  the  plea  that  such  a  road  was  a  military  neces- 
sity and  would  tend  to  the  better  protection  of  the  empire 
from  invasion.  Meanwhile,  the  Board  of  Admiralty,  stimu- 
lated by  the  Marquis  Tseng,  also  presented  a  memorial  to 
the  Throne,  in  which  they  proposed  the  construction  of  a 
railway  from  Taku  to  Tientsin  and  Shanhaikwan,  for  the 
purpose  of  facilitating  the  mobilization  of  troops  in  those 
places  and  also  for  the  transportation  of  coal  which  they 
described  as  "  the  life  and  the  pulse  of  the  navy."  These 
two  memorials  fortunately  struck  the  right  chord  and  the 
Empress  Regent  issued  an  edict 1  formally  approving  the 
construction  of  a  railway  in  China.  The  name  of  the  com- 
pany was  then  changed  to  "  China  Railway  Company  "  and 
a  prospectus  2  was  issued  advertising  for  the  subscription 
of  Tls.  1,000,000,  the  Hongkong  and  Shanghai  Banking 
Corporation  being  made  bankers.3  It  was,  however,  with 
great  difficulty  that  the  promoters  succeeded  in  financing 
the  scheme. 

In  April,  1888,  the  section  to  Tongku  was  completed;  in 
August,  Tientsin  was  reached.  In  1890,  the  section  to  the 
east  of  Tientsin  was  completed  to  Kuyeh.  By  1891  the  ex- 
tension to  Shanhaikwan  was  authorized  and  the  Chinese 
Imperial  Railway  Administration  was  formed  with  Mr. 
Kinder  as  Engineer-in-Chief  to  carry  on  the  work  which 
was  completed  in  1894. 

Besides  the  above  actual  progress,  other  projects  were  ad- 

1  For  full  text  of  edict,  see  Appendix  C  in  R.  S.  Grundry's  China 
Past  and  Present,  London,  1895. 

2  See  Appendix  D  in  the  same  book,  and  U.  S.  Consular  Reports, 
vol.  xxiii,  no.  81,  p.  66. 

3  The  bankers  were  Englishmen  and  the  bank  is  a  British  institution. 


251]  A  DISCOURAGING  BEGINNING  23 

vocated  by  quite  a  number  of  officials.  In  February,  1889, 
the  Viceroys  and  Governors  throughout  the  Empire  were 
commanded  to  advise  the  Throne  on  the  subject  of  railways. 
Two  of  these  memorials  x  were  received  with  great  atten- 
tion, namely,  those  of  Liu  Ming  Chuan  (Governor  of 
Formosa)  and  Chang  Chih-tung  (Viceroy  of  Liang  Kuang). 
The  former  advocated  strongly  the  advisability  of  continu- 
ing the  Tongku-Tientsin  line  to  Tungchow,  while  the  latter 
urged  the  construction  of  a  trunk  line  from  Lukowchiao 
(a  village  near  Peking)  to  Hankow,  an  important  indus- 
trial and  commercial  center  on  the  Yangtsze  River.  The 
Tungchow  project  was,  however,  strongly  opposed  by  the 
reactionary  party  who  maintained  that  as  railways  would 
facilitate  the  transport  of  foreign  troops  and  as  Tungchow 
was  only  twelve  miles  from  Peking  the  capital  would  be 
dangerously  exposed  to  foreign  attack  in  case  of  an  in- 
vasion. This  opposition  was  carried  to  such  an  extreme  de- 
gree that  it  not  only  blocked  the  decree  but  incited  a  riot 
of  the  junk  owners  whose  business  on  the  Peiho  River  had 
suffered  more  or  less  by  the  competition  of  the  railway. 
The  riot  was  not  quelled  until  the  Viceroy  ordered  the 
destruction  of  the  bridge  connecting  the  Foreign  Settle- 
ment and  South  Tientsin,  thus  placating  the  junk  owners 
by  facilitating  the  shipping  demand. 

Meanwhile  permission  had  been  granted  to  continue  the 
railway  beyond  the  Great  Wall  at  Shanhaikwan.  At  the 
outbreak  of  the  war  with  Japan  in  1894,  the  line  had  been 
extended  to  Chung-hou-so,  forty  miles  beyond  Shanhaik- 
wan. The  line  between  Tientsin  and  Shanhaikwan.  how- 
ever, a  distance  of  174  miles,  was  the  only  one  in  operation 
in  this  period.  The  Chung-hou-so  extension  was  still 
under  construction  when  the  war  broke  out  and  several 

1  Kuaug-su  Cliong-yau,  vol.  xv,  leaves  9-12  and  12-15. 


24  RAILWAY  PROBLEMS  IN  CHINA  [252 

branch  lines  had  been  projected.  Surveys  were  also  made 
160  miles  from  Chung-hou-so  to  Kirin,  the  center  of  Man- 
churia. During  the  war  with  Japan  work  on  the  road  was 
naturally  interrupted  suddenly  and  was  resumed  afterwards 
only  by  overcoming  much  political  opposition  and  many 
financial  difficulties.  The  close  of  the  war  marks  the  close 
of  the  first  period  of  railroad  development  in  China. 

General  References 

U.  S.  Consular  Reports,  vol.  x,  no.  34  (1883)  ;  vol.  xxiii,  no.  81  (1887)  ; 
vol.  xxvi,  no.  96;  vol.  xxix,  nos.  101  and  103. 

C.  Denby  and  E.  P.  Allen,  "  Chinese  Railway  Development,"  in  Engi- 
neering Magazine,  London,  1898,  vol.  xvi,  pp.  339-348. 

R.  E.  Bredon,  Railway  and  Inland  Taxation,  Shanghai,  1897.  China: 
Statistical  Dept.,  Special  Series,  no.  22. 


SECOND  PERIOD 


CHAPTER  III 

The  Struggle  for  Railway  Concessions 

Throughout  this  period  railway  politics  took  a  very 
important  and  significant  part  in  the  campaign  of  interna- 
tional politics  played  in  China.  The_s_truggle_for  railway 
concessions  came  hand  in  hand  with  the  "  Battle  for  Con-  ./ 
cessions  "  *  waged  f rorr{~i8Qo~ To~iQoa]  The  latter  desig- 
nates the  occupation  of  territ<  »ry  under  the  guise  of  lease,  the 
securing  of  rights  or  grants  for  the  working  of  mines,  the 
construction  and  management  of  railways,  and  the  enjoy- 
ment of  special  or  exclusive  financial  and  commercial  privi- 
leges in  China,  either  by  the  interested  foreign  governments 
separately  or  in  combination,  or  by  the  foreign  syndicates 
backed  by  their  respective  governments  to  carry  out  a  cer- 
tain design,  political,  military,  commercial  or  otherwise. 
It  is  evident,  therefore,  that  in  order  to  clear  up  the  com- 
plicated position  taken  up  by  the  railway  in  this  "  Battle," 
it  is  necessary  to  touch  upon  some  of  the  influences  and 
causes,  the  development  and  result  of  which  were  utterly 
unexpected. 

Railway  concession  has  occupied  many  volumes  of  diplo- 
matic correspondence  found  in  the  Colored  Books  of  the 
different  governments,  especially  those  published  from  [897 
to  1901.  In  the  "Battle  for  Concessions"  the  private 
speculator  in  railways  appeared  on  the  scene  to  worry  the 
Chinese  Government,  but  behind  him,  in  addition,  was  the 

1  According  to  Lord  Salisbury's  description;  see  British  Blue  Book, 
China  Affairs,  no.  1,  1899,  dispatch  no.  232. 

2551  27 


28  RAILWAY  PROBLEMS  IN  CHINA  [256 

whole  diplomatic  force  of  his  country.  Later,  the  bankers, 
encouraged  by  their  governments  to  finance  railway  con- 
struction in  those  regions  which  the  latter  had  marked  out  as 
their  sphere  of  political  influence  or  of  pecuniary  interest, 
secured  for  the  money  market  the  issues  of  loans  and  for 
the  trade  of  their  respective  countries  orders  for  the  ma- 
terials required. 

The  subject  is  very  complex  and  rapidly  changing  in  dif- 
ferent phases.  It  is  only  possible  to  indicate  briefly  the 
essential  points  which  have  an  intimate  relation  to  the  rail- 
way development  of  China.  Let  us  now,  first  of  all,  trace 
the  causes  and  events  which,  being  political  and  strategical 
on  the  one  hand  and  financial  and  commercial  on  the  other, 
led  to  the  struggle  for  railway  concessions  and  to  the  sub- 
sequent controversies  and  troubles  between  China  and  the 
Powers,  and  even  dissension  among  the  Powers  themselves. 
The  railways  given  away  by  China  under  the  circumstances 
created  by  these  events  and  causes  may  be  accordingly 
divided  into  two  distinct  categories,  according  to  the  pur- 
poses of  their  promoters,  vis. :  ( 1 )  those  granted  for  political 
and  strategical  reasons;  (2)  those  granted  for  commercial  or 
capitalistic  reasons. 

Foreign  Political  and  Strategical  Railways 

When  our  troops  were  defeated  by  the  Japanese  in  the 
autumn  of  1894,  the  policy  of  the  Powers  with  respect  to 
China  was  consequently  changed.  Russia  headed  the  way 
and  prepared  to  play  an  important  part  in  the  Far  East  by 
the  construction  of  the  Trans-Siberian  Rartway.  _  Long  be- 
fore the  Chino- Japanese  War,  Russia  had  cherished  the 
idea  of  constructing  a  railroad  from  the  Urals  to  the 
Pacific  coast,1  with  the  object  of  strengthening  her  strate- 

1  Count  Monravieff  Amnrski,  the  Czar's  Minister  of  Foreign  Affairs, 
after  having  annexed  the  province  of  Amur  to  Russia,  favored  the  idea 


2^y]      THE  STRUGGLE  FOR  RAILWAY  CONCESSIONS      2g 

gical  position  and  political  influence  in  the  Far  East. 
Russia's  first  attempt  was  to  seize  one  of  the  Korean  ports, 
free  from  the  grip  of  ice,  as  a  terminus,  but  this  attempt 
failed  owing  to  England's  objection.1  In  May,  1891.  the 
Siberian  Railroad  was  officially  started  by  the  Czarevitch, 
now  the  Czar  of  Russia,  at  Vladivostock.  The  Chino- 
Japanese  War  had  given  Russia  the  opportunity  to  secure 
an  ice-free  port  in  the  territory  of  China. 

Under  the  terms  of  the  peace  treaty  of  Shimonoseki. 
negotiated  with  Japan  and  signed  April  17,  [895,  by  Li 
Hung-chang,  on  behalf  of  the  Manchu  Court,  Chiiia"was 
compelled  to  recognize  the  independence  of  Korea,  and  1 1 
cede  to  Japan  Port  Arthur  in  the  Liaotung  Peninsula  and 
Weihaiwei  in  the  Shantung  province  in  addition  to  the 
islands  of  Formosa  and  the  Pescadores.  In  the  Liaotung 
Convention,  November  8,  1895,  the  Mikado's  Government, 
under  the  pressure  exerted  by  Russia,  Germany  and  France 
combined,  retroceded  Port  Arthur  and  Weihaiwei  to  China, 
obtaining  as  compensation  a  further  sum  of  30,000,000  taels 
in  addition  to  the  original  war  indemnity  of  200,000.000 
taels.  The  financial  difficulties  of  the  Chinese  Government 
in  paying  off  the  first  instalment  of  the  indemnity  gave 
opportunities  to  the  foreign  Powers  to  obtain  influence  in 
the  councils  of  the  Manchu  Empire.  Accordingly,  the 
European  Powers  competed  for  the  privilege  of  supplying  v 
the  monetary  needs  of  China. 

The  Czar's  Minister  of  Finance,  M.  de  Witte,  devised  a 

of  making  an  overland  road  from  Russia  to  the  Far  East,  which  was 
set  out  in  Voltaire's  letter  dispatched  to  Count  Schervorof,  dated  Fer- 
ney,  June  11,  1761. 

1  Before  1885  Russia  intended  to  seize  Wensan.  In  anticipation  of 
such  action,  England,  meanwhile,  seized  Port  Hamilton,  a  Korean 
island.  In  February,  1887,  England  evacuated  it  on  the  promise  of 
Russia  that  she  would  not  take  any  Korean  territory. 


30 


RAILWAY  PROBLEMS  IN  CHINA 


[258 


7' 


remarkable  but  infamous  scheme  of  making  the  Russian 
Government  China's  guarantor  so  as  to  enable  China  to  float 
a  loan  of  400,000,000  francs  at  4  per  cent,  issued  at  94, 
Jn  Paris.  In  return,  as  compensation  for  her  friendly  office, 
Russia  made  a  treaty  with  China — the  Cassini  Convention — 
whereby  Russia  secured  the  privilege  of  constructing  a  rail- 
road across  Manchuria  to  connect  her  Siberian  and  Ussuri 
System.  This  concession  marked  the  beginning  of  the 
initial  struggle  for  railway  concessions  in  China,  which  had 
hitherto  been  pursued  somewhat  more  on  political  than  com- 
mercial lines.  This  was  also  the  first  step  toward  what  has 
been  called  "  Russia's  pacific  conquest  of  China."  And 
thus  the  tragic  curtain  to  the  "  Battle  for  Concessions  " 
was  lifted. 

France  was  not  inactive  in  demanding  something  for  her 
services  to  China.  On  June  20,  18957  a  treaty  with  France 
was  signed  by  China,  stipulating,  besides  the  extension  of 
the  frontier  between  China  and  Indo-China  and  the  ex- 
ploitation of  mines  situated  in  the  Province  of  Yunnan  and 
other  resources,  that  the  military  railways  already  built  be- 
tween Phulangthuong  and  Langson  in  Tongking,  or  other 
railroads  to  be  constructed  in  Annam  might,  after  a  mutual 
understanding,  be  extended  into  Chinese  territory.  In  1897, 
an  exchange  of  notes  took  place  between  the  French  Min- 
ister in  Peking  and  the  Tsung-li  Yamen  x  reminding  China 
^  of  her  obligations.2 

Great-Britain  now  wanted  to  act  in  her  turn.  On  Febru- 
ary 4,  1897,  she  made  a  treaty  with  China,  in  which,  be- 
sides many  privileges  granted  to  her.  China  allowed  an  im- 

1  The  Foreign  Office  of  China,  the  first  of  its  kind  found  in  the  his- 
tory of  China,  established  Jan.  31,  1861. 

2  See  Documents  Diplomatique s,  China;  issued  by  the  Ministere  des 
Affaires  fitrangeres,  published  by  the  Paris  Imprimeree  Nationale ; 
vols,  of  the  years  1894  to  1898. 


2~g]      THE  STRUGGLE  FOR  RAILWAY  CONCESSIONS      31 

portant  modification  on  the  Burmese  frontier.  At  the  end 
of  the  same  year,  China,  having  been  obliged  to  liquidate 
the  Japanese  War  Indemnity,  negotiated  a  loan  with  some 
British  financial  agents.  The  security  of  the  loan  was  Jp 
be  the  native  and  maritime  customs,  the  salt  tax  and  Likin 
(an  internal  merchandise  tax) .  But  the  British  Government 
was  not  satisfied  with  this  ample  and  sufficient  security  and 
demanded  certain  concessions  in  addition.  These  included 
the  railway  from  Burma  to  Yunnan,  a  guarantee  of  the  non- 
alienation  of  the  Yangtsze  region  to  any  other  Power, 
greater  freedom  of  internal  trade  with  the  abolition  of  Likin 
on  foreign  goods  in  the  treaty  ports,  and  finally  the  opening 
of  Talienwan  and  Nanning  to  foreign  trade.  Russia  pro- 
tested against  the  loan  on  the  ground  that  the  balance  of  in- 
fluence would  be  upset  thereby,  while  France  objected  to  the 
Railway  clauses  and  the  opening  of  Nanning.  Russia  also 
offered  an  alternative  loan  on  easier  terms  to  China.  But 
the  British  exerted  such  great  pressure  upon  Peking  that  the 
Central  Government  had  no  way  to  escape  and  was  forced 
to  yield.  The  loan  was  finally  arranged  under  Anglo-Ger- 
man auspices  with  the  Likin  as  security,  which  was  to  be 
under  the  control  of  the  Inspector-General  of  Maritime 
Customs,  an  Englishman.  At  the  same  time  China  had  to 
grant  in  recompense  all  the  British  demands.1  — . 

From  the  above  lesson  China  learned  to  her  great  cost 
that  the  supposed  friendly  offices  of  the  foreigner  might  be     y/ 
just  as  dangerous  to  her  national  honor  and  integral  existj 
ence  as  his  open  hostility. 

But  China  was  not  yet  at  the  end  of  her  troubles.     In 

1 897  when  two  German  priests  were  murdered  by  a  mob  in 
"Shantung,  the  Kaiser  Wilhelm's  Admiral  without  sending  an 

ultimatum  or  any  notification  to  Emperor  Kuang-su  seized 

1  See  British  Blue  Book,  China,  no.  i,  1899,  pp.  12-30. 


$2  RAILWAY  PROBLEMS  IN  CHINA  [26o 

Kiaochow  Bay,  town  and  district,  and  the  German  Govern- 
ment refused  to  evacuate  until  China  was  hectored  into 
agreeing,  in  a  formal  convention  on  March  8,  1898,  to  com- 
pensation to  the  families  of  the  murdered  missionaries,  an 
amount  to  reimburse  Germany  for  the  cost  of  occupation^ 
the  degradation  of  the  Governor  of  Shantung,  the  ninety- 
nine  years'  lease  of  the  country  occupied,  and  the  granting 
of  mining,  railway  and  exclusive  financial  privileges 
throughout  the  whole  valuable  province  where  Confucius, 
the  Greatest  Teacher  of  China,  was  born.  By  virtue  of 
this  convention  Germany  obtained  the  right  to  build  a  tri- 
angular railway  system  in  Shantung.  German  capitalists 
also  obtained  the  right  of  preference  to  find  capital  for  any 
scheme  for  the  development  of  Shantung  made  by  the 
Chinese  Government  or  citizens,  and  German-made  ma- 
terials were  guaranteed  a  preference  over  all  others.1 

The  recognition  of  the  occupation  of  Kiaochow  and  the 
concessions  of  railways  and  mines  to  Germany  accelerated 
the  aggressive  actions  of  the  other  covetous  Powers.  Russia 
0  made  a  more  significant  advance  from  North  Manchuria 
and  on  March  27,  1898,  secured  a  twenty-five  years'  lease 
of  Port  Arthur  and  Talienwan,  and  compelled  the  Manchu 
Court  to  permit  the  Chinese  Eastern  Railway  Company  2  to 
extend  a  branch  "fine  from  a  certain  point  (Harbin)  on 
the  main  line  to  these  two  ports. 

As  Russia,  Germany  and  Great  Britain  had  been  granted 
important  concessions  in  the  North  and  the  Yangtsze  Valley, 
France,  in  order  to  balance  her  political  and  commercial 
influences  in  the  Far  East,  occupied  in  April  Kwong- 
chowwan,  in  the  Gulf  of  Tongking,  and  secured  the  right  to 

1  Parker   (E.  H.),  "  The  German  Sphere  of  Influence  in  China,"  in 
United  Service  Maga.,  1899,  vol.  cxli,  pp.  172-186. 

2  Cf.  infra,  p.  52. 


J^A- 


26l]       THE  STRUGGLE  FOR  RAILWAY  CONCESSIONS      33 

construct  a  railway  to  Yunnan  from  the  Tongking  frontier 
and  a  promise  not  to  alienate  any  territory  in  the  three  pro- 
vinces of  Kwangtung,  Kwangsi  and  Yunnan.1 

Next,  as  the  balance  of  power  in  the  Gulf  of  Pechili  was 
materially  altered  by  the  surrender  of  Port  Arthur  to 
Russia,  the  Marquis  of  Salisbury,  then  head  of  the  British 
Foreign  Office,  sent  a  British  fleet  from  Hongkong  to  the 
Gulf  and  demanded  Weihaiwei  from  China.  In  June, 
Kowloon  including  Alirs  Bay  was  also  ceded  to  England. 
Meanwhile,  Japan  also  demanded  the  non-alienation  of 
Fukien  province. 

These  disgraceful  events  in  the  history  of  China  are 
briefly  enumerated  here  in  order  to  show  that  the  so-called 
"  Spheres  of  Influence,"  or  the  "  Spheres  of  Interest  "  L" 
were  roughly  established  at  this  stage  of  the  struggle  with 
regard  especially  to  the  concessions  of  railways.  The  policy 
of  securing  a  sphere  of  influence  or  of  interest  was  pursued 
without  any  regard  to  China's  claim  to  rank  as  a  sovereign 
nation.  , 

And  thus  we  see  tha^  the  four  systems  of  railway,]?',  c, 
the  Russian  system  in  Manchuria,  the  German  system  in 
Shantung,  the  French  system  in  Yunnan  and  Kwangsi,  and 
the  Briti.-di  system  connecting  Burma  with  Yunnan  and 
Szechuanall  owe  their  origins  to  political  and  strategical 
rather  than  commercial  aspirations.  They  are  singled  out 
here  that  they  may  not  be  confused  with  other  roads  which 
belong  to  the  second  category. 

The  Russian,  German  and  French  groups  were  completed. 
They  are  to  all  intents  and  purposes  the  property  of  the 
three  countries  named,  with  the  exception  of  that  of  the 

1  See  volumes  of  the  years  1898-1901  of  the  Documents  Diploma- 
tique s,  China. 

2  For  definition  of  these  terms  see  Reinsch,  World  Politics  (New 
York,  1912),  pp.  61  and  113. 


V 


34  RAILWAY  PROBLEMS  IN  CHINA  [262 

Germans  which  may  go  into  the  pocket  of  the  Mikado  after 
the  present  World  War.  China  has  no  control  over  them. 
Her  sovereign  rights  are  encroached  upon  in  all  respects. 
How  China  shall  deal  with  them,  or  rather  how  China 
shall  get  them  back,  is  a  question  which  is  serious  in  char- 
acter and  the  solution  of  which  depends  upon  future  circum- 
stances and  most  important  of  all,  upon  the  material  strength 
China  will  have  in  the  future. 

The  British  system,  however,  was  only  projected  and 
surveyed  in  1899.  Since  then  no  definite  agreement  has  yet 
been  reached.  Recently  several  surveys  have  been  made 
but  no  further  work  has  been  done  as  the  mountains  and 
valleys  all  run  crosswise  to  the  projected  route,  which  will 
require,  consequently,  considerable  labor  in  construction. 

Railways  granted  to  Foreign  Capitalists 

The  railways  of  the  second  category  were  initiated  by 
China  to  an  extent  and  were  more  or  less  political  in  nature 
although  financial  and  commercial  considerations  were 
taken  up  seriously.  These  originated  in  a  very  unpleasant 
manner.  The  disastrous  result  of  the  Chino- Japanese 
War  was  a  profound  surprise  and  humiliation  to  China  and 
it  had  left  behind  it  strong  progressive  tendencies  in  the 
bosoms  of  many  of  China's  patriotic  children.  JVlany  of 
the  enlightened  officials  realized  that  the  want  of  means  of 
rapid  transport  had  prevented  China  from  using  efficiently 
her  troops  stationed  in  different  parts  of  the  country,  and 
they  grasped  the  fact  that  the  remedy  for  the  defeat  lay 
in  the  construction  of  railways.  Among  them  was; Chang. 
Chih-tung,  now  transferred  to  take  up  the  Viceroyship  of 
Hukuang.  Viceroy  Chang  petitioned  the  Throne  to  au- 
thorize the  establishment  of  a  company  which  should  raise 
capital  in  China  and  undertake  the  construction  of  all  im- 


263]      THE  STRUGGLE  FOR  RAILWAY  CONCESSIONS 


63 


portant  trunk  roads,  retaining  full  control  in  the  hands  of 
China.  He  suggested  that  the  upper  section  of  the  trunk 
line  running  from  Lukouchiao  to  Hankow  should  be  first 
constructed  and  this  section  when  completed  be  extended  to 
Canton.  He  further  stated  that  a  great  trunk  line  putting 
the  metropolis  in  quick  communication  with  the  several 
central  and  southern  provinces  was  not  only  commercially 
but  strategically  necessary.1  In  February,  1896,1a  Chinese 
company  was  formed  with  a  capital  fixed  at  -thirty  million 
taels.  The  failure  to  raise  capital  at  home,  however,  fet- 
tered the  hands  of  Chang  Chih-tung  and  his  f<  TI<  >wers  and 
ultimately  forced  the  Government  to  admit  foreign  capital. 
A  Belgian  syndicate.  La  Socictc  d'Etudc  des  Chemins  de 
fcr  en  Chine,  appeared  in  the  scene,  and,  in  May  ^897,  after 
underbidding  a  group  of  American  financiers  and  another 
of  British  capitalists,  obtained  the  contract  for  the  con- 
struction of  the  line.2  When  it  became  known  that  the 
syndicate  was  assisted  at  the  Peking  Court  by  the  ministers 
of  Russia  and  France  and  also  by  the  influence  of  the  Russo- 
Chinese  Bank — this  meant  to  the  English  and  Germans  that 
a  Russian  move  to  bring  Russian  influence  to  the  very  heart 
of  the  Yangtsze  Valley  and  Shantung  was  hidden  under 
the  Belgian  syndicate — the  British  and  German  ministers 
protested  very  violently,  basing  their  remonstrances  on  the 
"  most  favored  nation  "  clause  of  their  respective  treaties. 
The  British  Government,  which  was  emphatic  in  its  remon- 
stance  and  demands,  ordered  a  naval  demonstration  on  the 
China  Sea  and  made  the  Belgian  concession  a  pretext  for 
demanding  from  China  important  privileges  and  railway 
concessions. 

1  See  British  Blue  Book,  China  Affairs,  no.  1  (1899),  pp.  87-89  (trans- 
lation). 

2  U.  S.  Monthly  Consular  Reports,  1898,  vol.  lviii,  no.  218. 


/ 


36  RAILWAY  PROBLEMS  IN  CHINA  [264 

In  11898,  Sir  Claude  MacDonald  succeeded  in  exacting 
from  China  a  string  of  concessions  for  the  construction 
of  various  railways  in  the  Yangtsze  river  basin,  in  South 
China  and  in  the  southwestern  part  of  China,  and  with  the 
co-operation  of  the  Kaiser's  minister  secured  the  conces- 
sion of  the  Tientsin-Chinkiang  line.  Meanwhile,  the 
Peking  Syndicate,1  an  Anglo-Italian  combination,  obtained 
a  grant  of  extensive  mining  and  railway  rights  in  the  Pro- 
vince of  Shansi  and  that  part  of  Honan  north  of  the  Yellow 
River,  while  the  Russo-Chinese  Bank  secured  a  concession 
for  a  line  from  Chingtlngfu  to  Taiyuanfu,  the  capital  city 
of  Shansi.  The  French  were  also  active  in  the  Chinese 
railway  extensions,  for  in  September  1899,  the  official  agree- 
ment between  China  and  France  for  the  Lungchow-Xan- 
ning  railway  was  signed  in  Peking. 

After  having  experienced  various  troubles  with  the  for- 
eigners, the  Government  became  anxious  for  the  future  of 
the  concessions  granted,  and  decided  to  grant  away  its  rail- 
ways with  more  carefulness  thereafter.  On  December  13, 
1898,  the  Tsung-li  Yamen,  in  collaboration  with  the  Board 
of  Mines  and  Railways,2  memorialized  the  Throne  to  the 
effect  that  "  with  the  exception  of  the  trunk  and  branch 
lines  already  arranged  for  and  sanctioned,  the  construction 
of  which  will  be  proceeded  with  in  order,  no  other  lines 
shall  be  undertaken  for  the  present/'  On  the  same  day 
the  Imperial  holograph  Rescript — "  Let  it  be  as  proposed  " 
— was  received.     The  Yamen  then  transmitted  copies  of  the 

1  The  Peking  Syndicate  was  registered  in  England  on  March  17,  1897, 
for  the  purpose  of  obtaining  and  developing  concessions  for  mining, 
railway,  and  other  industries  in  China. 

2  The  board  was  created  by  the  Imperial  Edict  of  Aug.  1,  1898,  to 
take  charge  of  railway  and  mining  matters  in  connection  with  foreign 
concessions. 

s  British  Blue  Book,  Affairs  of  China,  no.  1    (1900),  pp.  23-27. 


265]      THE  STRUGGLE  FOR  RAILWAY  CONCESSIONS      $j 

Decree  and  Memorial  to  the  Diplomatic  Corps  in  Peking  for 
their  information.  This  was  of  course  followed  by  a  storm 
of  protest  from  the  latter.  This  time,  however,  the  Gov- 
ernment was  able  to  resist  and  stuck  to  its  decision.  There- 
after the  granting  of  railways  to  foreigners  was  stopped  for 
a  considerable  number  of  years,  although  various  applica- 
tions were  made  from  time  to  time  by  different  syndicates. 
According  to  the  Memorial  the  reasons  for  this  sudden 
stoppage  of  grants  of  right  for  railway  construction  were 
as  follows : 

1.  Under  the  circumstances  at  that  time  it  was  necessary 
to  discriminate  between  the  urgency  of  the  various  proposed 
lines  and  the  order  in  which  they  should  be  built,  i.  c,  to 
undertake  trunk  lines  first  and  branch  lines  next. 

2.  It  was  feared  that  there  would  be  no  material  funds 
for  the  repayment  of  foreign  debts,  principal  and  interest, 
or  to  meet  the  cost  of  maintaining  the  lines. 

At  about  the  same  time  the  Board  of  Mines  and  Railways 
drew  up  a  set  of  "  Regulations  for  Mines  and  Railways  "  1 
governing  future  enterprises  so  as  to  assert  control  over 
them  and  encourage  Chinese  to  invest  money  in  them.  The 
essentials  of  the  regulations  may  be  summed  up  as  follows : 

1.  Railways  and  mines  can  be  managed  by  officials,  by    V 
merchants,  and  by  the  two  in  combination. 

2.  The  mines  and  railways  of  Manchuria,  Shantung  and 
Lungchow  (in  Kwangsi  province)  are  affected  by  inter- 
national relations  and  therefore  will  not  be  allowed  to  form 
precedents  either  for  Chinese  or  foreigners. 

3.  Railways  and  mines  must  not  be  worked  in  combin-      V 
ation.     In  future  no  more  mining  rights  will  be  given  along 

the  routes.     Mining  companies  are  allowed,   however,  to 

1  For  full  text  of  the  regulations  see  translation  given  in  U.  S. 
Monthly  Consular  Reports,  April,  1899. 

270353 


38  RAILWAY  PROBLEMS  IN  CHINA  [266 

construct  branch  railways  to  connect  with  the  nearest  water- 
ways. 

4.  Only  the  Government  board  has  the  right  to  grant  ap- 
plications for  mines  and  railways. 

5.  In  the  case  of  Chinese  enterprises  the  companies  must 
have  a  proportion  of  at  least  three-tenths  of  the  shares 
owned  by  Chinese.  When  this  proportion  has  been  raised, 
foreigners  may  be  invited  to  buy  shares;  but  in  borrowing 
foreign  money  the  sanction  of  the  board  must  first  be  asked. 
Foreign  money-lenders  must  on  the  other  hand  request  their 
minister  to  communicate  with  the  Tsung-li  Yamen,  asking 
if  the  company  is  authorized  to  borrow.  Money  lent  in 
any  other  way  will  be  treated  as  a  private  loan.  Should 
disputes  arise  between  Chinese  and  foreign  merchants,  in 
connection  with  railway  and  mining  enterprises,  they  must 
be  settled  by  arbitration;  the  governments  concerned  will 
not  interfere. 

6.  All  such  enterprises  will  be  granted  a  monopoly  for  a 
fixed  period,  the  duration  of  which  will  be  determined  by 
the  circumstances  of  the  case. 

In  addition  to  the  above  there  are  other  minor  points 
regulated  which  relate  to  the  sanction  of  contracts  and  agree- 
ments, the  procedure  in  regard  to  the  acquiring  of  lands,  the 
provision  for  a  school  of  instruction  by  the  companies,  the 
qualification  of  promoters,  the  protection  of  foreign  en- 
gineers and  surveyors,  rewards  to  Chinese  entrepreneurs, 
the  imposing  of  custom  duties  on  railway  traffic  and  min- 
ing produce,  the  proportion  of  profits  to  be  paid  to  the 
Government,  the  examination  of  accounts,  etc. 

Later  events  show,  however,  that  although  these  regula- 
tions were  elaborately  drafted  and  approved  by  the  Govern- 
ment they  could  not  be  carried  out  satisfactorily,  especially 
those  relating  to  foreigners.  The  provisions  regarding 
Chinese  private  enterprises  could  be  enforced  only  to  a  cer- 


267]       THE  STRUGGLE  FOR  RAILWAY  CONCESSIONS      39 


/ 


tain  extent.     The  high  proportion  of  profits   which   was 
fixed  at  40  per  cent  for  railways  and  25  per  cent  for  mines 


has  done  nothing  to  encourage  such  enterprises.  Late] 
however,  a  new  set  of  mining  and  railway  regulations  have 
Keen  published  giving  more  liberal  terms  to  the  private 
entrepreneurs. 

At  the  time  when  the  regulations  for  mines  and  railways 
were  issued  there  were  practically  no  Chinese  private  mining 
and  railway  enterprises.  Naturally  they  were  regarded  by 
the  foreigners  as  restrictions  imposed  upon  them  alone. 
Further  diplomatic  negotiations  were  carried  on  demanding 
modifications.  To  these  the  Government  turned  a  deaf  ear. 
As  a  matter  of  fact,  up  to  that  time  over  6000  miles  of  rail- 
ways.  most  of  which  were  on  paper,  had  been  granted  to  the 
foreigners.  -  The  full  list  of  railway  concessions  to  all  na- 
tionalities up  to  November  23,11898,  can  best  be  seen  in  the 
following  inclosures  attached  tba  dispatch  1  which  was  sent 
by  Sir  MacDonald  to  Lord  Charles  Beresford : 


(IX CLOSURE    i) 


Nationality 


British2.. 
Russian  . . 
German  2. 
Belgian  . . 
French. . . 
American2 


No. 


Total  length  of  line 
represented 


2,800  miles ' 
1,530 

720 

750 

420 

300 


6,420  miles 


1  British  Blue  Book,  "  Affairs  of  China,"  no.  1   (l      0    PP-  34  W  17- 

2  Half  interests  are  reckoned  at  half  the  estimated  length. 

3  Including  Hankow-Canton  and  Yunnan- Yangtsze  Railways. 

4  Including  Manchuria  Railway  (from  Stretensk  to  Vladivostok). 


40  RAILWAY  PROBLEMS  IN  CHINA  [268 

(Inclosure  2) 

Concessions  other  than  British  (up  to  Nov.  23,  1898) 

RUSSIAN 

(1).  The  Manchurian  Railway  Concession  dates  from  1896. 

The  whole   length    from   Stretensk  on  the  main 

Siberian  line  to  Vladivostock  is  estimated  at  1,400  miles,  of 
which  about  1,000  will  pass  through  Chineses  territory. 

The  concession  is  purely  strategical.  The  country  traversed, 
though  potentially  rich,  in  great  part  is,  and  will  be  for  a  long 
time,  sparsely  populated,  and  the  line  cannot,  in  the  near  future 
at  any  rate,  hope  to  pay  its  working  expenses. 

(2).  The  Port  Arthur  Agreement  of  March,  1898,  arranges 
for  the  conclusion  by  Russia  of  a  branch  from  the  above  line 
to  Port  Arthur  or  Talienwan.  The  length  of  the  railway  will 
be  about  400  miles 

(3).  The  Russo-Chinese  Bank  has  signed  a  contract  for  the 
construction  of  a  branch  line  from  Taiyuanfu  to  connect  with 
the  Lu-Han  trunk  lines  near  Chingting.  Length  approximately 
130  miles 

FRENCH 

The  French  possess  the  right  to  construct  three  lines ;  but  be- 
yond acquiring  this  right  they  have  done  nothing. 

(1).  From  Tongking  up  the  Red  River  Valley  to  Yunnanfu, 
say  290  miles. 

The  impression  in  French  railway  circles  is  that  a  railway 
through  Yunnan  will  not  pay  expenses,  and  if  any  serious  at- 
tempt is  made  to  carry  out  the  extension  of  the  Tonquin  sys- 
tem, it  will  be  merely  as  a  stepping-stone  to  Szechuan.  Yet 
again,  any  pretensions  that  a  railway  from  Yunnan  to  the 
Yangtsze  may  have  to  rank  as  a  commercial  project  have  been 
pronounced  against  by  every  traveller  in  Central  China. 

(2).  Langson-Lungchow-Nanning  Railway.  Length,  about 
100  miles.  (There  appears  to  be  an  alternative  open  to  the 
French  of  going  to  Pese  instead  of  Nanning.) 


269]      THE  STRUGGLE  FOR  RAILWAY  CONCESSIONS      4I 

(3).  From  Pakhoi  inland,  presumably  to  Nanning.  Length, 
say  120  miles.  The  Tonquin  press  have  pointed  out  that  this 
line  will  benefit  English  commerce  more  than  French.  It  will 
never,  in  my  opinion,  be  built  by  the  French. 

GERMAN 

(1).  Kiao-Chow-Yichow-Tsinan  line;  length,  420  miles. 
(2).  Tientsin-Chinkiang  line  to  be  built  by  an  Anglo-German 
Co.     (See  No.  3,  British  Concessions.) 

BELGIAN 

The  Lu-Han  or  Peking- Hankow  Railway.  A  Franco-Bel- 
gian Syndicate  has  secured  the  Concession  for  this,  a  trunk  line 
of  some  650  or  700  miles  passing  North  and  South  through 
Chihli,  Honan  and  Hupeh. 

This  railway  is  an  old  project  born  of  Chang  Chih-tung's 
objection  to  building  lines  near  the  coast,  "  lest  they  should 
facilitate  the  access  of  an  enemy."  Its  prospects  as  a  com- 
mercial enterprise  are  not  considered  so  good  as  those  of  the 
rival  Tientsin-Chinkiang  line. 

AMERICAN 

The  only  railway  in  which  America  is  at  present  interested 
is  the  trunk  line  projected  from  Hankow  to  Canton.  (See 
British  Concession  no.  11). 

(Inclosure  3) 
Railway  and  other  Concessions  obtained  by  British  Companies 

1.  shansi 

The  Peking  Syndicate  has  acquired  the  "  sole  right  to  open 
and  work  coal  and  iron  mines  throughout  the  districts  of  Yii 
Hsien  and  Ping  Ting  Chow,  and  the  Prefectures  of  Lusan  Fu, 
Tsu-chow  Fu,  and  Ping  Yang  Fu,  and  also  petroleum  wherever 
found." 

Under  its  contracts,  the  syndicate  has  also  the  right  to 
"  construct  branch   railways  to   connect  with   main   lines  or 


42  RAILWAY  PROBLEMS  IN  CHINA  [270 

with  water  navigation,  to  facilitate  transport  of  Shansi  coal." 
This  has  been  interpreted  officially  to  include  the  right  of 
connecting  the  mines  with  Siang-yang  in  Hupeh,  the  near- 
est head  of  navigation  giving  access  to  the  Yangtsze. 
This  means  a  railway  of  250  miles. 

II.    HONAN 

The  Peking  Syndicate  has  also  acquired  rights  similar  to 
those  obtained  in  Shansi  in  that  part  of  Honan  north  of  the 
Yellow  River. 

III.    CHIHLI 

The  Hongkong  and  Shanghai  Bank  are  financing  and  con- 
trolling the  North  China  railways  from  Peking  to  Tientsin,  and 
thence  to  Shanhaikwan  and  Newchwang.  The  total  length  of 
these  is  about  500  miles,  of  which  300  miles  are  completely 
open  to  traffic. 

IV.    NORTH    CHINA 

The  bank  has  also  acquired  a  half-interest  in  the  coal  mines 
at  Nan  P'iao,  in  the  Ch'ao-yang  district.  According  to  ex- 
perts, these  mines  possess  the  best  and  richest  coal  seams  in 
North  China,  and  they  have  the  immense  advantage  of  being 
close  to  a  line  of  railway  and  the  sea. 

V.    CHIHLI  AND  KIANGSU 

The  Tsung-li  Yamen  have  undertaken  officially  that  the 
construction  of  the  Tientsin-Chinkiang  line  shall  be  intrusted 
to  an  Anglo-German  Syndicate.  The  British  portion  of  this 
Syndicate  is  represented  in  China  by  Messrs.  Jardine,  Mathe- 
son,  &  Co.,  and  the  Hongkong  and  Shanghai  Bank.  This  will 
be  a  trunk  line  of  600  miles  passing  through  more  populous 
country  than  the  Lu-Han  Railway  (the  Belgian  line),  with 
which  it  is  certain  to  be  able  to  compete. 

VI.    KIANGSU 

A  British  Syndicate,  represented  by  Messrs.  Jardine,  Mathe- 
son,  &  Co.,  and  the  Hongkong  and  Shanghai  Bank,  has  ob- 


2ji]       THE  STRUGGLE  FOR  RAILWAY  CONCESSIONS      43 

tained  the  concession  to  finance  and  construct  the  Shanghai- 
Nanking  Railway.  There  is  no  more  paying  district  than  this 
for  a  railway  in  China.  The  length  of  the  line  will  be  170 
or  180  miles. 

VII.    KIANGSUj  AXI1UI,  AND  EONAN 

The  same  syndicate  has  the  right  to  extend  the  Shanghai- 
Nanking  Railway  from  Pukow  opposite  Nanking  to  Hsin  Vang, 
in  Honan,  a  distance  of  270  miles. 

VIII.    KIAXG5U  AXD  CHEKIANG 

The  same  syndicate  has  the  right  to  construct  a  line  from 
Soochow  to  Hangchow  with  possible  extension  to  Ningpo. 
This  line  will  run  through  a  very  populous  district  for  over 
200  miles. 

The  last  three  concessions  all  lie  within  the  Yangtsze  region. 

IX.    PROVIXCE  OF  CHEKIAXG 

The  Peking  Syndicate  has  also  obtained  mining  concessions 
similar  to  the  Shansi  and  Honan  in  this  province. 

X.    KWANGTUNG 

The  Jardine  Syndicate  has  the  right  to  construct  a  railway 
from  Kowloon  to  Canton.  The  length  of  this  line  will  be 
nearly  100  miles. 

XI.    HUPEH,  KIAXGSI,  AXD  KWAXGTUNG 

An  American  Syndicate  signed  a  preliminary  agreement  for 
the  construction  of  a  railway  from  Hankow  to  Canton  in  .Maw 
1897.  Negotiations  are  now  in  progress  for  the  amalgamation 
of  this  concession  with  the  Kowloon-Canton  line,  and  the 
working  of  the  whole  line  from  Hankow  to  Canton  by  an 
Anglo-American  Company.  This  will  be  a  trunk  line,  ap- 
proximately 600  miles  long. 

XII.    YUNNAN,   KWHU  HOW,  AND  SZECHUAN 

The  right  to  extend  the  Burmah  system  into  China  as  far  as 
the  Yangtsze  is  admitted,  and  surveys  are  now  in  progress. 


44  RAILWAY  PROBLEMS  IN  CHINA  [272 

This  involves  a  possible  railway  of  700  miles.     (See  Remarks 
on  French  Concessions.) 

The  number  of  miles  and  some  of  the  routes  relating  to 
the  above  railway  concessions  were  only  roughly  estimated 
and  plotted  and  may  be  subsequently,  as  we  shall  see  later, 
subject  to  changes.  Notwithstanding,  most  of  these  con- 
cessions have  been  realized  one  after  another. 

Up  to  the  middle  part  of  the  year  1900  the  Russian, 
French,  Belgian,  and  American  syndicates  pushed  on  in 
surveying  or  in  constructing  their  respective  roads  with 
considerable  vigor  and  energy.  The  British  concession- 
aires, however,  were  very  inactive  and  backward  in  carry- 
ing out  the  work  on  their  concessions,  most  of  which  were 
only  in  preliminary  arrangement  and  by  no  means  promis- 
ing of  anything  definite.  This  was  first  due  to  the  political 
intrigues  which  had  influenced  the  Government  to  oppose 
British  enterprises  and  support  the  Franco-Belgian  group 
of  capitalists  backed  by  Russian  diplomacy,  and  secondly 
due  to  the  outbreak  of  the  Boer  War  which  had  made  it 
for  a  time  impossible  to  raise  capital  in  the  London  money 
market  to  finance  projects. 

The  securing  of  concessions  for  building  railroads  and 
working  mines  by  foreign  syndicates  supported  by  their  re- 
spective governments  or  by  the  combination  of  several  gov- 
ernments, the  energetic  but  dangerous  action  exhibited  by 
the  aggressive  foreign  ministries  and  navy  and  army  cliques 
in  robbing  territories  and  seizing  political  and  commercial 
privileges,  and  the  subsidizing  of  China  by  foreign  capital 
stirred  up_,5H_anti- foreign  feeling  among  the  people. 
In  June,  1900,  the  Boxer  movement  originating  in  the 
Province  of  Shantung,  burst  over  North  China.  Its  results 
were  the  further  humiliation  of  China  and  the  retardation 
of  the  constructional  work  on  railways.     After  the  Boxer 


273]       THE  STRUGGLE  FOR  RAILWAY  CONCESSIONS      4- 

trouble  construction  of  railways  was,  nevertheless,  pushed 
on  with  greater  rapidity  than  ever  before.  After  this  con- 
vulsion China  began  to  lead  a  new  life  and  to  look  forward 
towards  finding  some  means  for  her  reform  and  salvation. 

Railway  Spheres  of  Interest 

So  far  we  have  studied  only  one  view  of  the  "  Battle  for 
Concessions,"  i.  e.,  how  the  European  Powers  have  treated 
China  and  what  they  have  squeezed  out  of  her,  especially 
with  respect  to  railway  concessions.  Now  we  come  to  an- 
other aspect  of  the  battle,  i.  c.,  how  the  European  Powers 
came  from  time  to  time  into  conflict  with  one  another  in 
dividing  their  spoils  exacted  from  China.  It  is  instructive 
and  interesting  to  note  the  understandings  and  arrangements 
made  among  the  foreign  governments  and  concessionaires 
as  to  their  respective  spheres  of  activity  with  regard  to  the 
construction  and  financing  of  railways  in  China. 

i.  England  and  France.  Our  attention  is  first  attracted 
by  the  Anglo-French  Siam  Convention  of  1896,  respecting 
the  exploitation  of  Szechuan  and  Yunnan.  By  this  Con- 
vention the  two  nations  pledged  each  other  to  enjoy  in  com- 
mon all  the  privileges  and  advantages  of  any  nature  con- 
ceded to  either  nation  within  these  provinces.  This  agree- 
ment is  looked  upon  as  a  temporary  modus  vivendi,  lie- 
cause  when  a  French  syndicate  obtains  concessions  in 
Yunnan  or  Szechuan  they  usually  add  these  provinces  to 
their  sphere  of  interest,  and  similarly  with  the  British.  The 
emphatic  denouncement  1  of  the  French  pretensions  by  Sir 
MacDonald  tells  us  the  truth.  A  similar  situation  was 
created  in  the  province  of  Kwangtung.  As  the  Govern- 
ment lacks  power  to  declare  its  intention  to  exclude  the  in- 
terference of  the  one  in  favor  of  the  other,  international 
complications  are  to  be  feared  in  case  any  cause  of  friction 

1  Cf.  supra,  p.  40. 


46  RAILWAY  PROBLEMS  IN  CHINA  [274 

is  created,   especially  when  remembering  the  tremendous 
interests  at  issue  between  the  two  nations  in  these  provinces. 

2.  England  and  Germany.  Another  international  ar- 
rangement was  that  which  developed  out  of  the  apportion- 
ment of  the  Tientsin-Pukow  line.  In  August,  1898,  Mr. 
Yung  Wing  (educated  in  the  United  States),  who  had  been 
granted  the  right  to  form  a  company  to  construct  this  road, 
signed  a  contract  with  an  Anglo-American  Syndicate  for  a 
loan  of  5,000,000  pounds  sterling.1  As  the  Germans  have 
secured  railway  rights  in  Shantung  the  German  minister  in 
Peking  applied  for  the  grant  of  this  concession.  Because 
of  the  German  influence  in  Shantung  and  the  indefinite 
nature  of  Mr.  Yung  Wing's  right  the  syndicate  subsequently 
withdrew  from  the  field.  But  as  the  line  was  in  part  to 
traverse  the  Yangtsze  Valley,  the  British  and  Chinese  Cor- 
poration was  also  interested  in  it.  The  suggestion  was  then 
made  that  the  enterprise  should  be  taken  up  by  both  British 
and  German  capitalists  acting  jointly.  The  two  govern- 
ments concerned  favored  this  idea  and  sanctioned  the  pro- 
posal. A  working  arrangement  was  immediately  formu- 
lated for  the  financing  and  construction  of  the  line,  in  which 
Great  Britain  would  take  up  that  part  from  the  southern 
boundary  of  Shantung  to  the  terminus  at  Chinkiang  (later 
changed  to  Pukow,  a  point  opposite  Nanking,  the  terminus 
of  the  Shanghai-Nanking  Railway  project),  and  Germany 
would  share  to  the  extent  of  such  part  of  the  line  as  tra- 
versed her  sphere  of  influence. 

In  the  meantime  Russian  influence  was  becoming  pre- 
dominant over  North  China  and  threatening  the  interests 
of  the  two  nations.  The  situation  was  such  that  it  re- 
quired a  more  complete  understanding  between  England 
and  Germany  and  a  strengthening  of  their  common  purpose 

1  U.  S.  Monthly  Consular  Reports,  1898,  vol.  lvii,  pp.  585-587. 


27-]       THE  STRUGGLE  FOR  RAILWAY  CONCESSIOXS      4j 

to  prevent  further  encroachment  by  Russia  upon  the  center 
of  China.  Consequently  the  capitalists  of  the  two  countries 
arrived  at  an  agreement  in  regard  to  their  respective  rail- 
way spheres  in  China.  The  British  financiers  agreed  to 
confine  their  activities  to  the  Yangtsze  Valley,  while  the 
Germans  retained  the  valley  of  the  Yellow  River  and  the 
Province  of  Shantung.  The  arrangement  has  important 
international  consequences,  as  it  has  checkmated  the  Russian 
advance  from  the  North  and  created  a  German  sphere  of 
railway  interest  which  has  served  as  a  wedge  between  those 
•of  the  British  and  the  Russians — a  wedge  which  has  pre- 
vented much  friction  between  Great  Britain  and  Russia. 
The  agreement,1  proposed  by  Herr  M.  A.  von  Hanseman 
representing  the  German  Official  Syndicate  with  regard  to 
the  railway  spheres  of  interest  for  applications  for  railway 
concessions  in  China,  which  was  accepted  by  the  British  and 
Chinese  Corporation  and  the  Hongkong  and  Shanghai  Bank- 
ing Corporation  and  sanctioned  by  their  respective  govern- 
ments, is  understood  to  be  as  follows  : 

It  is  desirable  for  the  British  and  German  Governments  to 
agree  about  the  sphere  of  interest  of  the  two  countries  regard- 
ing the  railway  constructions  in  China,  and  to  mutually  sup- 
port the  interests  of  either  country. 

i.  British  sphere  of  interest,  vis. — The  Yangtsze  Valley, 
subject  to  the~connection  of  the  Shantung  lines  to  the  Yangtsze 
at  Chinkiang ;  the  provinces  south  of  the  Yangtsze ;  the  prov- 
ince of  Shansi  with  connection  to  the  Peking-Hankow  line  at 
a  point  south  of  Chengting  and  a  connecting  line  to  the  Yang- 
tsze Valley,  crossing  the  Hoangho  Valley. 

2.  German  sphere  of  interest,  via. — The  province  of  Shan- 
tung and  the  Hoangho  Valley  with  connection  to  Tientsin  and 

1  British  and  German  Agreement  re  Railway  Construction  in  China, 
Minutes  of  Meeting  held  at  New  Court,  St.  Swithcn's  Lane,  London, 
on  the  ist  and  2nd  Sept.,  1898. 


48  RAILWAY  PROBLEMS  IN  CHINA  [2/6 

Chengting,  or  other  point  of  the  Peking-Hankow  line,  in  the 
south  with  connection  to  the  Yangtsze  at  Chinkiang  or  Nan- 
king. The  Hoangho  Valley  is  understood  to  be  subject  to  the 
connecting  lines  in  Shansi  forming  part  of  the  British  sphere 
of  interest,  and  to  the  connecting  line  to  the  Yangtsze  Valley, 
also  belonging  to  the  said  sphere  of  interest. 

3.  England  and  Russia.  In  the  winter  of  1898  when  the 
Chinese  Imperial  Railway  Administration  concluded  with 
the  British  and  Chinese  Corporation  the  Shanhaikwan  Ex- 
tension Railway  Loan  of  2,300,000  pounds  sterling,  the 
Russian  government  raised  serious  objections  to  the  Loan 
Contract  while  the  British  Government  of  course  upheld  it. 
This  was  followed  by  a  storm  of  violent  protests ;  and  long 
negotiations  were  conducted  between  London  and  St.  Peters- 
burg (Petrograd).  On  April  29,  1899,  notes  were  ex- 
changed and  signed  by  the  British  Ambassador  at  Petro- 
grad and  the  Russian  Minister  for  Foreign  Affairs,  record- 
ing the  Agreement 1  arrived  at  in  regard  to  railways  in 
China.     The  arrangement  was,  in  substance,  as  follows : 

1.  Russia  engages  not  to  seek  for  herself  or  on  behalf  of 
Russian  subjects  other  railway  concessions  in  the  Yangtsze 
Basin,  and  not  to  place  obstacles  either  directly  or  indirectly  in 
the  way  of  railway  enterprises  in  that  region  supported  by  the 
British  Government. 

2.  Similar  engagement,  mutatis  mutandis,  by  Great  Britain 
north  of  the  Great  Wall. 

A  supplementary  note,  which  reflects  at  once  more  clearly 
the  real  nature  and  demarcation  of  the  spheres  of  interest 
of  the  two  nations  was  exchanged  at  the  same  time,  respect- 
ing the  Shanhaikwan-Newchwang  extension  and  the  branch 
line  from  Siaocheichau  (north  of  Shanhaikwan)  to  Hsin- 
mintun,  which  reads  in  part  as  follows : 

1  British  Blue  Book,  China,  no.  2  (1899),  p.  87,  et  seq. 


2yy]       THE  STRUGGLE  FOR  RAILWAY  CONCESSIONS      49 

The  general  arrangement  established    is 

not  to  infringe  in  any  way  the  rights  acquired  under  the  said 
Loan  Contract,  and  the  Chinese  Government  may  appoint  both 
an  English  engineer  and  a  European  accountant  to  supervise 
the  construction  of  the  line  in  question  and  the  expenditure  of 
the  money  appropriated  to  it. 

But  it  remains  understood  that  this  fact  cannot  be  taken  as 
constituting  a  right  of  property  or  foreign  control,  and  that 
the  line  in  question  is  to  remain  a  Chinese  line  under  control  of 
the  Chinese  Government,  and  cannot  be  mortgaged  or  alienated 
to  a  non-Chinese  Company. 

As  regards  the  branch  line  from  Siaoheichau  to  Hsinmintun, 
in  addition  to  the  aforesaid  restrictions,  it  has  been  agreed 
that  it  is  to  be  constructed  by  China  herself,  who  may  permit 
European  (not  necessarily  British)  engineers  to  periodically  in- 
spect it,  and  verify  and  certify  that  the  work  is  being  properly 
done. 

The  present  agreement  is,  naturally,  not  to  interfere  in  any 
way  with  the  right  of  the  Russian  Government,  if  it  thinks  fit,  to 
support  applications  of  Russian  subjects  or  establishments  for 
concessions  for  railways  which,  starting  from  the  main  Man- 
churian  line  in  a  southwestern  direction,  would  traverse  the 
region  in  which  the  Chinese  line,  terminating  at  Hsinmintun 
and  Newchwang,  is  to  be  constructed. 

Besides  the  above  mentioned  nations  there  were  several 
others  taking  great  interest  in  railway  matters  in  China. 
Among  them  were  the  United  States  and  Italy.  From  the 
very  beginning  the  United  States  has  pursued  a  very  right- 
eous course  in  dealing  with  China.  She  always  main- 
tained fair  play  which  has  been  greatly  appreciated  by 
China.  Her  "open  door"  policy,  made  known  through 
her  wise  Secretary  of  State,  Mr.  Hay,  has  saved  China 
from  serious  humiliation.  Even  during  the  stormy  period 
of  the  Battle  for  Concessions  China  had  great  confidence  in 
her.    This  can  be  proved  in  the  case  of  the  Canton-Hankow 


50  RAILWAY  PROBLEMS  IN  CHINA  [278 

concession,  which  the  Chinese  Government  intrusted  to 
the  American  syndicate,  with  full  power  to  control  the  ex- 
penditure of  loan  funds  and  the  management  of  the  road, 
while,  on  the  contrary,  she  held  these  to  herself  in  the  case 
of  the  Belgian  concession  for  the  Peking-Hankow  road.1 

At  the  beginning  of  1899,  Italy  endeavored  to  secure 
a  place  in  China.  She  selected  as  her  field  of  exploitation 
the  Province  of  Chekiang.  Although  she  had  England's 
support,  her  effort  was  a  failure.  This  was  due  to  two 
reasons:  First,  Peking  did  not  look  upon  her  with  favor; 
secondly,  the  popular  opposition  of  the  Italians  in  those 
days  to  an  expansionist  policy  changed  the  mind  of 
their  government.  Italy  now  adopts  the  policy  of  only 
utilizing  the  commercial  opportunities  in  China. 

Bel^iumjias,  no  doubt,  taken  up  a  very  prominent  posi- 
tion in  the  Chinese  railway  circles;  but  she  has  no  special 
policy,  except  to  find  new  markets  for  the  products  of  her 
great  iron  industries,  and  at  the  same  time  to  create  a  pro- 
fitable financial  business.  She  has,  however,  to  attach  her- 
self to  France  and  Russia  to  accomplish  her  desire. 

This  was  the  general  situation,  and  the  above  were  the 
general  arrangements  concluded  between  the  leading  Powers 
in  China  just  before  the  close  of  the  last  century.  At  the 
dawn  of  this  century  when  Japan  succeeded  in  claiming  her 
ascendancy  over  Far  Eastern  affairs  a  new  character  was 
added  to  the  list  of  the  players  in  the  Chinese  railway 
drama.  We  will  study  this  very  character  in  the  following 
period  of  railway  development  in  China. 

It  is  understood  that  the  above  international  arrangements 
can  not  be  and  will  never  be  perpetually  maintained.  There 
are  many  forces,  political,  financial,  or  otherwise,  working 
constantly  to  upset  them.  We  shall  see  later  that  the  Russian, 
the  German  and  even  the  British  spheres  of  interest  have 

1  Cf.  infra,  pp.  74-78. 


279]      THE  STRUGGLE  FOR  RAILWAY  CONCESSIONS      5I 

already  been  changed  or  modified  one  after  the  other,  not 
only  by  outsiders  and  new  forces  but  also  by  the  very  nations 
who  concluded  these  arrangements.  In  fact,  France  has 
been  engaged  in  a  great  effort  to  join  hands  with  Russia 
across  the  British  sphere  of  influence.  However,  such  an 
action,  like  other  undermining  forces,  can  not  affect  Great 
Britain  seriously  for  she  has  pursued  the  wisest  course  in 
China — the  course  of  the  "  open  door  "  and  equal  commer- 
cial opportunity.  Great  Britain  was  chiefly  interested  in 
the  trade  of  the  Yangtsze  Valley.  Her  effort  has  been 
mostly  directed  towards  preserving  the  freedom  of  trade 
unhampered  by  foreign  interference,  except  occasionally 
when  the  situation  was  such  that  she  had  to  act  in  a  some- 
what awkward  manner. 

On  the  other  hand,  the  course  taken  by  Russia  and  Ger- 
many has  been  tested  and  is  found  an  utter  failure.  The 
rapid  changing  of  hands  of  their  interests  in  South  Man- 
churia and  Shantung  teaches  these  foreigners  a  lesson  that 
selfishness  can  never  succeed.  Nay,  injuries  brought  upon 
the  wrong-doers  themselves  have  resulted  from  their  cher- 
ishing the  ambition  of  territorial  expansion  and  national 
imperialism.  In  order  to  accomplish  that  ambition  various 
wonderful  schemes  and  clever  intrigues  have  been  applied 
for  the  purpose  of  securing  exclusive  privileges  from  a  help- 
less country.  At  the  time  of  the  Battle  for  Concessions  who 
knew  that  what  they  had  gotten  from  China  was  to  be  lost  ? 
Nay,  more  than  that,  they  have  lost  their  own  energy  and 
money  in  addition  to  the  loss  of  their  game.  It  remains 
to  be  seen  who  will  ultimately  be  benefited. 

Turning  now  from  politics  to  the  consideration  of  the 
railway  status,  we  are  in  a  position  to  note  what  has  been 
actually  accomplished  by  the  concessionaires.  The  railways 
described  below  are  those  the  construction  of  which  was 
either  completed  or  started  within  the  second  period  of  rail- 
way development  in  China. 


CHAPTER  IV 

The  Foreign  Railroads 

The  Chinese  Eastern  Railway 

On  September  8,  1896,  &n  agreement  was  signed  between 
the  Chinese  and  the  Russian  Governments  regarding  the 
construction  of  this  line.  Under  this  agreement  theRusso- 
Chinese  Bank,  a  semi-official  institution  incorporated  to  pro- 
mote Russian  interests  in  the  Far  East,  acquired  the  right  to 
form  a  company  called  the  Chinese  Eastern  Railway  Cc^to^ 
construct  a  railway  across  Manchuria  forming  part  of  the 
through  line  from  Europe  to  Vladivostock.  The  company 
was  organized  with  a  capital  of  5,000,000  roubles,  nominal 
credit,  which  was  divided  into  1,000  shares  at  5,000  roubles, 
nominal  credit.  The  statutes  of  the  company  were  drawn 
up  by  the  chief  promoter,  M.  de  Witte,  and  formulated  by 
the  Russo-Chinese  Bank.1 

According  to  the  statutes,  which  were  approved  by  the 
Russian  Government  on  December  4-16,  1896,  the  share- 
holders of  the  company  may  be  only  Chinese  and  Russians. 
The  concession  shall  lapse  at  the  end  of  eighty  years  from 
the  day  of  opening  of  traffic  along  the  whole  line.  The 
Russian  Government  guarantees  the  revenue  of  the  line  for 
covering  working  expenses,  as  well  as  for  effecting  the  obli- 

1  Chinese  Eastern  Railway  Agreement  and  Statutes,  see  Chung  Hwa 
Fa  Kwei  Tax  Tsueuen  (Complete  Set  of  Rules,  Regulations,  Treaties, 
etc.  of  the  Repuhlic  of  China),  (Shanghai,  1913),  treaties,  vol.  xi, 
leaves  30  et  seq.  The  statutes  (in  English),  translated  partly,  see 
British  Blue  Book,  China,  no.  1  (1900),  PP-  57-6i. 

52  [280 


2gl]  THE  FOREIGN  RAILROADS  53 

gatory  payments  on  bonds.  Bonds  can  be  issued  only  on  de- 
mand, and  only  with  the  consent  of  the  Russian  Minister 
of  Finance.  The  Russian  Government  also  guarantees  pay- 
ment of  the  interest  and  the  amortization  of  the  bonds,  and 
reserves  to  itself  the  right  to  appropriate  the  bond  loan 
at  a  price  which  shall  be  determined  between  the  company 
and  the  bank,  and  to  pay  to  the  company  the  agreed  amount 
in  ready  money.  The  company  is  managed  by,  a  Board  of 
Management  of  nine  members  elected  by  the  shareholders, 
and  a  Chairman  appointed  by  the  Chinese  Government.  The 
Yice-Chairman  is  chosen  by  the  members  of  the  Board  from 
among  themselves.  The  chief  duty  of  the  Chairman  is  to 
keep  watch  over  the  interests  of  the  Chinese  Government. 
The  Vice-Chairman  is  supposed  to  interest  himself  ex- 
clusively in  the  management  of  the  company.  The  Russian 
Government  has  a  right  to  superintend  the  progress  and 
development  of  the  works,  during  the  period  both  of  con- 
struction and  of  exploitation.  The  Russian  Minister  of 
Finance  has,  moreover,  the  right  to  ratify  the  nominations 
of  the  Vice-Chairman,  the  Chief  Engineer,  and  all  other 
officials.  On  the  expiration  of  thirty-six  years  from  the 
time  of  completion  of  the  whole  line,  the  Chinese  Govern- 
ment has  the  right  to  acquire  the  line  by  refunding  to  the 
company  in  full  all  the  outlays  made  on  it  by  making  pay- 
ment for  everything,  such  payments  to  be  made  with  ac- 
crued interest. 

In  addition  to  the  above  there  are  other  regulations  con- 
cerning the  transport  of  troops,  the  control  of  properties 
near  the  line,  the  discrimination  of  tariff,  etc.  All  the 
terms  stipulated  in  the  agreement  prove  the  preponderating 
Russian  influence  in  the  enterprise.  It  must  be  borne  in 
mind  that  the  majority  of  the  shares  are  in  the  hands  of  the 
Russian  Government. 

It  is  therefore  evident  that  the  Chairman,  appointed  by 


54  RAILWAY  PROBLEMS  IN  CHINA  [282 

China,  is  simply  a  figurehead,  and  that  the  whole  road  is  ex- 
clusively Russian.  Throughout  all  the  statutes  of  the  agree- 
ment the  only  important  reservation  made  in  the  interest  of 
China  is  the  right  of  repurchase  of  the  road  on  the  expir- 
ation of  thirty-six  years  from  the  date  of  its  opening  for 
traffic  and  on  the  assumption  of  the  responsibilities  of  the 
said  company. 

After  all  arrangements  were  settled  the  Russian  Govern- 
ment was  very  prompt  in  carrying  out  the  construction  of 
the  road,  more  on  account  of  the  important  political  con- 
sideration at  that  time  than  because  of  the  shortening  of  the 
route.  The  Trans-Siberian  Railroad  as  originally  pro- 
jected was  entirely  within  Russian  territory  and  followed  the 
bank  of  the  Amur  River  from  Stetinsk  to  the  Ussuri — a 
wide  useless  detour.  When  Russia  secured  this  conces- 
sion the  section  on  the  north  bank  of  the  Amur  River 
was  abandoned  for  a  Trans-Manchurian  Railroad  which 
leaves  a  station  near  Chita  and  enters  Manchuria  at  Man- 
chouli  to  rejoin  the  original  line  at  Nikolskoli,  about  67 
miles  from  Vladivostock — thus  shortening  the  distance  by 
about  500  miles.  The  line  running  across  Manchuria  to- 
wards Vladivostock  covers  a  distance  of  about  960  miles 
in  Chinese  territory.  In  the  Spring  of  TSgyJ\vovk  of  con- 
struction was  started  and  in  the  same  year  the  city  of 
Harbin  was  founded  and  made  the  headquarters  of  con- 
struction. This  was  the  first  step  toward  what  has  been 
called  Russia's  "  pacific  conquest  "  of  China. 

But  it  was  merely  preparatory  to  a  more  significant  and 
more  ambitious  advance.  When  the  Germans  stepped  on 
Shantung  and  seized  Kiaochow  Bay  from  China,  Russia 
secured  a  twenty-five-year  lease  of  Port  Arthur  and 
Talienwan  and  a  permit  to  extend  a  branch  line  of  five- 
foot  gauge,  from  Harbin  on  the  main  line  to  Talienwan, 
subject  to  the  same  conditions  as  stipulated  in  the  September 


2gi]  THE  FOREIGN  RAILROADS  55 

8,  1896,  Agreement  between  the  Russo-Chinese  Bank  and 
the  Chinese  Government.  The  eighth  clause  of  the  Agree- 
ment x  (March  27,  1898)  concerning  the  lease  of  the  Liao- 
tung  Peninsula  issued  for  this  branch  line  reads : 

The  Chinese  Government  agrees  that  the  principle  of  the 
permission  given  in  the  22d  year  of  Kuang-su  (1896)  to  the 
Manchurian  Railway  Co.  for  the  construction  of  a  railway 
shall  now  from  the  date  of  signature  be  extended  to  the  con- 
struction of  a  branch  line  from  a  certain  station  in  the  afore- 
said main  line  to  Talienwan,  or  if  necessity  requires,  

to  a  convenient  point  on  the  sea  coast  in  the 

Liaotung  Peninsula  between  Yingtsu  (Newchwang)  and  the 
Yalu  River.  The  provisions  of  the  agreement  of  the  8th  of 
September,  1896,  between  the  Chinese  Government  and  the 
Russo-Chinese  Bank,  shall  be  strictly  observed  with  regard  to 
the  branch  line  above  mentioned. 

The  construction  of  the  whole  system  was  pushed  on  very 
rapidly.  In  the  fall  of  (1 901  \the  entire  Chinese  Eastern 
Railway  connectingjhejljan^- Siberian  line  with  Yladi- 
vostock  across  Manchuria  and  the  line  south  from  Harbin 
to  Port  Arthur  were  completed.  This  system  in  Man- 
churia in  all  measured  about  1,600  miles.  The  estimated 
cost  of  construction  of  the  whole  system  was  about  Rbs. 
422,292,547.  After  the  Russo-Japanese  War  the  South- 
ern section  of  the  railway  from  kuangchengtze  to  Dairen 
(Japanese  spelling  of  Talien)  was  surrendered  to  Japan. 
The  Chinese  Eastern  Railway  system,  as  it  now  stands, 
has  a  total  mileage  of  only  1,078  miles;  the  Manchouli 
(via  Harbin)  to  Suefenho  (Pagronitchnaia)  section  forms 
the  Manchurian  section  of  the  Trans-Siberian  Railway  with 
a  branch  to  Kuangchengtze. 

3  Chung  Hwa  Fa  Kwei  Tai  Tsucucn,  treaties,  vol.  xi,  leaves  32-35- 


56  RAILWAY  PROBLEMS  IN  CHINA  [284 

The  Shantung  Railway  System 

When  Germany  secured  in  Kiaochow  a  strategical  and 
political  position  a  railway  convention  was  concluded  at  the 
same  time  with  the  signing  of  the  Kiaochow  lease  whereby 
the  right  to  construct  a  triangular  system  of  railways  in 
Shantung  was  also  secured.  The  base  of  the  triangle  was 
to  be  a  line  running  south-westward  from  Kiaochow  to 
Ichowfu;  one  side  was  to  proceed  from  Ichowfu  to 
Tsinanf u,  which  would  be  the  apex ;  and  the  other  side  was 
to  connect  Tsinanfu  with  Tsingtao.  Although  it  was  stipu- 
lated in  the  railway  agreement 1  that  a  Sino-German  Co. 
was  to  be  formed  and  that  the  people  or  Government  of 
China  were  at  liberty  to  invest  money  if  they  chose  and 
appoint  directors  for  the  management  of  the  enterprise, 
the  merchants,  investors  and  Government  of  China  did  not 
take  the  risk  of  purchasing  shares  because  of  the  political 
conditions  of  the  country  at  that  time.  So  the  railway,  now 
in  operation,  was  practically  financed  and  constructed  by 
the  Germans  entirely.  The  Germans  also  secured  the  right 
"  to  hold  and  develop  mining  property  for  a  distance  of 
thirty  li  (9  miles)  from  each  side  of  these  railways  and 
along  the  whole  extent  of  the  lines.''  It  was  provided  in  the 
same  agreement  as  follows : 

If  at  any  time  the  Chinese  should  form  schemes  for  the  de- 
velopment of  Shantung,  for  the  execution  of  which  it  is  neces- 
sary to  obtain  foreign  capital,  the  Chinese  Government,  or  what- 
ever Chinese  may  be  interested  in  such  schemes,  shall,  in  the 
first  instance,  apply  to  German  capitalists.  Application  shall 
also  be  made  to  German  manufacturers  for  the  necessary  ma- 
chinery and  materials  before  the  manufacturers  of  any  other 
power  are  approached.  Should  German  capitalists  or  manu- 
facturers decline  to  take  up  the  business  the  Chinese  shall  then 

1  Chung  Hzva  Fa  Kzvci  Tai  Tsucuen,  treaties,  vol.  iv,  leaves  18-20. 


2S5]  THE  FOREIGN  RAILROADS  57 

be  at  liberty  to  obtain  money  and  materials  from  sources  of 
other  nationality  than  German. 

The  acquisition  of  these  rights  aroused  keen  enthusiasm 
in  Germany.  The  Reichstag  appropriated  8,500,000  marks 
for  the  development  of  the  port  of  Tsingtao.  Various 
syndicates  in  Germany  competed  for  the  concession  from 
the  government  to  construct  the  railways  in  the  Province 
of  Shantung!  TrT  June  (1899  the  "  Schantung  Eisenbahn 
Gesellschaft  "  (Shantung  Railway  Co.)  was  organized  by 
the  prominent  competitors  at  Berlin  with  a  capital  of  54,- 
000,000  marks.  By  its  concession  the  syndicate  secured  the 
following  rights  :  ( 1 )  The  right  to  build  a  line  from  Tsing- 
tau  to  Kiaochow  and  from  the  latter  point  via  Wehsien  to 
Tsinanfu  together  with  a  branch  line  to  Poshan,  within  a 
period  of  five  years.  (2)  The  syndicate  was  given  an  option 
to  construct  a  line,  until  the  end  of  1908,  from  Kiaochow 
to  Ichowfu  and  another  connecting  Tsinanfu  and  Ichowfu. 
(3).  The  syndicate  secured  the  exclusive  right  for  a  period 
of  five  years  of  searching  for  minerals  and  petroleum  with- 
in a  zone  of  thirty  li  along  both  sides  of  the  railways  and 
of  applying  for  claims  in  respect  of  them. 

In  consideration  of  this  concession  the  syndicate  agreed 
to  turn  over  to  the  German  Government  a  part  of  the  surplus 
profits  after  paying  a  dividend  of  five  per  cent. 

On  March  21,  1900,  a  set  of  regulations  1  for  the  Kiao- 
chow and  Tsinanfu  Railway  was  drawn  up  and  signed  by 
the  representatives  of  the  Chinese  Government  and  the 
Sino-German  Co..  for  the  purposes  of  facilitating  the  con- 
struction work,  of  protecting  the  railway,  of  defining  more 
clearly  the  scope  of  the  company's  activity  and  the  nature 
of  the  concession,  etc.  Article  17  of  the  Regulations 
stipulated  in  these  words :  "  The  object  of  constructing  this 

1  Chung  Hwa  Fa  Kwei  Tai  Tsucuen,  treaties,  vol.  xii,  leaves  8-12. 


58  RAILWAY  PROBLEMS  IN  CHINA  [286 

line  is  solely  the  development  of  commerce,  and  it  will  not 
be  permissible  to  transport  foreign  soldiers,  munitions  used 
by  foreign  soldiers  or  anything  which  is  injurious  to  China. 
If  this  rule  is  violated  the  offender  or  offenders  will  be 
punished  according  to  the  Laws  of  the  Maritime  Customs." 
And  in  Art.  28,  it  was  agreed  that  the  provincial  govern- 
ment of  Shantung  shall  have  the  right  to  buy  back  this  line 
yf  after  twenty  years  by  paying  four-fifths  of  the  original  cost 
of  the  machinery,  rails  and  all  other  equipment  of  the  road.  J 

The  construction  of  the  main  line  from  Tsingtau  to 
Tsinan  was  completed  in  1904,  a  distance  of  240  miles.  It 
is  standard  gauge  of  4'  83/2 "  laid  on  iron  sleepers,  and  has 
a  branch  line  to  the  Poshan  mines  of  34  miles,  making,  in 
all,  274  miles.  The  proposed  line  between  Ichowfu  and 
Tsinanfu  was  abandoned  in  favor  of  the  Anglo-German 
Syndicate  in  connection  with  the  construction  of  the 
Tientsin-Pukow  line.  In  regard  to  the  line  from  Kiaochow 
to  Ichowfu  the  preliminary  surveys  have  been  made,  but 
further  work  has  been  abandoned. 

The  Yunnan  Railway 
By  the  Convention  x  of  April,  1898,  the  Chinese  Govern- 
ment granted  to  the  French  Government  or  the  company 
chosen  by  the  latter,  the  right  to  construct  a  railway  from 
the  frontier  of  Tongking  to  Yunnan fu.  On  December  25, 
1898,  the  French  Chamber  of  Deputies  passed  a  law  au- 
thorizing the  Government  of  Indo-China  to  grant  a  guaran- 
tee of  interest  to  the  company  which  might  become  the  guar- 
antees of  this  line.  The  governor-general  of  Indo-China, 
confirming  this  law,  signed,  on  June  15,  1901,  with  a  syndi- 
cate of  the  principal  financial  houses  of  Paris,  a  convention  2 

1  Documents  Diplomatiqaes,  China,  1894-1898,  pp.  45-50. 

2  Report  of  Cie.  Frangaise  des  Chemins  de  fer  de  L'Indo-Chine  et  du 
Yunnan  et  Societe  de  Construction  de  Chemins  de  fer  Indo-Chinois, 
pp.  10-12.     (Paris,  1910.) 


2gj]  THE  FOREIGN  RAILROADS  59 

(ratified  by  a  law  of  July  5,  1901)  for  the  building-  of  the 
railway  from  Laokay  to  Yunnanfu  and  for  the  working  of 
the  whole  line  from  Haiphon  to  Yunnanfu.  It  was  stipu- 
lated in  the  latter  convention  that  the  syndicate  had  to 
organize,  within  three  months  from  the  date  of  the  passage 
of  the  law  approving  this  convention,  a  stock  company  with 
a  capital  of  12,500,000  francs,  to  work  the  line  from 
Haiphon  to  Laokay  which  was  to  be  built  by  the  govern- 
ment of  Indo-China,  and  for  the  purpose,  also,  of  building 
and  working  the  railway  from  Laokay  to  Yunnanfu.  It 
was  also  stipulated  that  the  company  would  receive  from 
the  colony  a  subvention  of  12.500,000  francs  and  also  a 
guarantee  of  not  more  than  three  millions  of  francs  payable 
yearly  during  75  years,  which  was  to  be  additionally  guaran- 
teed by  the  home  government,  for  the  bonds  which  it  should 
have  issued  for  the  purpose  of  building  the  railroad.  The 
annuity  will  produce  a  capital  sum  of  76,000,000  francs  in 
75  years.  Thus  the  total  capital  estimated  at  the  start  was 
101,000,000  francs. 

Immediately  following  this  convention  the  Compagnie 
frangaise  dcs  Chemins  de  fcr  de  V Indo-Chine  et  du  Yunnan 
was  organized  and  bonds  were  issued.  For  the  purpose  of 
building  the  line  from  Laokay  to  Yunnanfu,  this  company, 
in  its  turn,  intrusted  the  work  to  the  Societe  de  Construction 
dcs  Chemins  de  fcr  Indo-Chine,  which  was  formed  by  the 
consolidation  of  the  Regie  generate  dcs  Chemins  de  fcr  and 
the  Societe  de  Construction  dcs  Batignolles.1 

In  the  autumn  of  1903,  when  the  conditions  under  which 
the  extension  of  the  line  was  to  be  made  on  the  territory 
of  China  became  justified,  the  French  minister  in  Peking 
negotiated  with  the  Government  the  final  agreement.2     The 

1  Ibid.,  pp.  12-15. 

2  Chung  Hwa  Fa  Kwei  Tat  Tsueuen,  treaties,  vol.  iii,  leaves  41-48. 


60  RAILWAY  PROBLEMS  IN  CHINA  [288 

principal  provisions  regarding  the  statutes  of  the  railroad 
are,  in  substance,  the  following: 

The  Chinese  Government  has  no  further  obligation  than  to 
surrender  the  necessary  land  for  the  line  and  its  dependencies. 
The  gauge  of  the  line  is  to  be  one  meter.  Once  the  line  be 
completed,  and  if  the  parties  concerned  deem  it  expedient, 
after  an  understanding  has  been  arrived  at  between  the  high 
provincial  authorities  on  the  one  side  and  the  French  minister 
and  the  Waipupu  on  the  other,  as  to  the  mode  of  procedure, 
branch  lines  connecting  with  the  main  line  may  be  constructed. 
All  supplies,  machinery  and  materials  necessary  for  the  con- 
struction and  exploitation  of  the  railroad  shall  be  exempted 
from  Import  Duty.  In  case  of  war  with  other  nations  and  the 
railroad  not  maintaining  its  neutrality,  China  may  take  over 
the  line  and  operate  it,  if  she  thinks  fit.  On  the  expiration  of 
eighteen  years  after  the  date  of  signing  the  agreement  the 
Chinese  Government  has  the  right  to  get  back  the  land  granted 
and  to  repurchase  the  line  from  the  French  Government  after 
the  payment  of  all  expenses  put  into  the  railroad,  including 
stocks,  interest  and  principal  of  bonds  and  all  properties  in 
connection  with  the  railroad. 

The  line  was  constructed  by  France  with  French  capital 

without  guarantee   from  the  Chinese   Government.      The 

duration  of  the  concession  is  to  be  eighty  years,  as  in  the 

-   case  of  the  Manchurian  Railway  Concession;  and  on  the 

expiration  of  that  period  the  railway  shall  revert  to  China. 

When  the  construction  work  began  on  the  Yunnan  sec- 
tion of  the  line  there  were  various  engineering  and  other 
technical  difficulties  which  had  to  be  overcome.  The  enor- 
mous expenditure  required  to  construct  the  railroad  through 
the  Nanting  Valley,  and  the  extraordinary  amount  of  tun- 
neling, bridging,  cutting  and  filling  consumed  all  the  ori- 
ginal funds  of  the  concessionaire  company,  which  col- 
lapsed   in    1 90S.     In    1909,    the    French    Foreign   Affairs 


289]  THE  FOREIGX  RAILROADS  6 1 

Committee  presented  its  report  upon  the  bill — which,  pro- 
viding for  the  supply  of  sufficient  funds  to  complete  the 
work,  was  passed  through  the  Chamber  of  Deputies  at  the 
end  of  1908 — authorizing  the  government  of  French  Indo- 
China  to  raise  a  loan  of  53,000,000  francs  in  order  to  meet 
the  expenditure  charged  to  the  budget  of  that  dependency 
in  connection  with  the  building  of  the  Yunnan  Railway. 
The  loan  is  guaranteed  by  the  home  government,  bearing 
interest  at  4  per  cent,  and  is  redeemable  in  65  years. 

With  the  fund  realized  from  the  above  loan  the  Laokay- 
Yunnan  line  was  completed  and  opened  to  traffic  in  April, 
191  o.  Its  commercial  prospect,  according  to  recent  re- 
ports, is  not  very  bright. 

In  consequence  of  the  financial  and  other  vicissitudes  of 
the  enterprise  and  various  alterations  in  the  plans,  the  initial 
cost  of  the  whole  line  from  the  sea  to  Yunnanfu  amounts  to 
about  Fes.  165,000,000  as  compared  with  the  original  esti- 
mate of  Fes.  101,000,000.  The  capital  of  the  Compagnie 
frangaise  des  Chemins  de  fer  de  Vlndo-Chine  et  du  Yunnan 
was  raised  to  Fes.  17,500,000.  Bonds  amounting  to  Fes. 
10,488,962  have  been  issued  by  the  company. 


CHAPTER  V 
Railways  Built  with  Foreign  Capital 

it 

Before  the  outbreak  of  the  Russo-Japanese  War  prac- 
tically all  railways  in  China  were  built  with  foreign  loans. 
Owing  to  the  unsettled  conditions  of  affairs  in  China  in 
those  days  and  the  ignorance  of  the  authorities  about  rail- 
way matters,  exceptional  powers  and  privileges  were  granted 
to  the  foreign  bankers  who,  thereby,  retained  full  control 
over  the  loan  funds.  As  the  foreign  governments,  who 
have  endeavored  to  acquire  fresh  fields  for  colonization  or 
to  create  preferential  markets  for  their  merchants,  have  ex- 
acted from  China  promises  of  different  kinds  for  the  rights 
of  way  for  railway  construction,  the  conclusion  of  loan 
agreements  has  been  usually  accomplished  after  much 
troublesome  diplomatic  negotiations.  Therefore,  a  foreign 
loan  negotiation  was  regarded  more  as  a  political  issue  than 
as  a  commercial  transaction.  Although  nominally  the  loan 
agreements  were  made  between  the  Chinese  Government 
and  the  various  syndicates  which  were  supposed  to  be 
private  organizations,  they  were  taken  more  as  "  treaties  " 
between  the  Chinese  Government  and  the  different  foreign 

governments  than  as  honest  business  contracts  be.tw.eerL.twQ 

parties.      Under  such  conditions,   it  can  readily  be  seen, 
v  /(the  result  was  that  unfavorable^and  even  notorious  terms 
Were  stipulated  in  the  agreements.  ! 

The  loan  agreements  concluded  before  1905  were  more 
or  less  similar  in  principle  to  the  Shanhaikwan  Extension 
Railway  loan  (sometimes  called  Peking-Newchwang  Rail- 
62  [290 


291]      RAILWAYS  BUILT  WITH  FOREIGN  CAPITAL  63 

way  Loan)  Agreement,1  the  preliminary  draft  of  which  was 
signed  on  June  7,  1898,  when  the  Government  contracted 
with  the  Hongkong  and  Shanghai  Banking  Corporation  a 
loan  for  the  Imperial  Railways  of  North  China.  The  de- 
finitive agreement  for  the  same  loan  was  signed  on  Decem- 
ber 10,  1898.  Under  this  agreement  a  precedent  was  cre- 
ated, the  effect  of  which  is  well  described  by  the  editor 
and  proprietor,  Mr.  Geo.  Bronson  Rea,  of  the  Far  Eastern 
Review,  in  the  following  words  : 2 

China  voluntarily  admitted  the  principle  that  her  officials 
were  incompetent  to  honestly  administer  the  proceeds  of  a  for- 
eign loan  to  the  satisfaction  of  the  investor.  And  having  once 
placed  her  financial  probity  in  question,  she  has  been  forced 
through  successive  similar  agreements  to  follow  a  practice 
which  no  other  nation  in  the  world  tolerates  for  an  instant. 
Through  all  subsequent  loan  negotiations  China  has  been  made 
to  feel  the  mortification  of  the  foreign  assumption  that  al- 
though her  security  is  good  her  integrity  is  rotten 

In  short,  while  China  could  give  ample  se- 
curity and  pay  good  interest,  she  could  not  be  trusted  with  the 
expenditure  of  the  money.  And  under  the  provisions  of  loan 
agreements  based  on  these  principles,  China  has  been  deprived 
of  authority  in  her  own  affairs,  and  the  national  commercial 
and  political  interests  of  money  lenders  advanced  coming  into 
direct  conflict  with  the  Open  Door  Doctrine. 

Under  this  agreement  and  several  others  which  were 
concluded  at  about  the  same  time  and  prior  to  the  Boxer 
outbreak  of  1900,  the  bankers  have  secured  not  only  the 
"  control  "  over  the  loan  funds  but  also  the  management 
of  the  railways  during  and  after  construction. 

1  Cf.  supra,  p.  48.  For  Chinese  text  of  Agreement  see  Chung  Hzva 
Fa  Kwei  Tai  Tsueuen,  treaties,  vol.  xi,  leaves  1-5.  For  English  text 
see  Kent,  Railway  Enterprise  in  China  (London,  1907),  Appendix  C. 

2  The  Far  Eastern  Review  (Shanghai,  China),  vol.  vi,  no.  6,  p.  215. 


64  RAILWAY  PROBLEMS  IN  CHINA  [292 

The  provisions  embodied  in  these  agreements  were  prac- 
tically similar  in  principle.  Besides  securing  a  first  mort- 
gage on  the  railroad  whose  construction  they  financed,  the 
bankers  were  entitled  to  a  share  in  the  profits  of  the  line, 
in  the  management  of  which  they  usually  obtained  for  their 
chief  engineer  powers  superior  to  the  Chinese  Administra- 
tor-General or  Managing  Director.  They  obtained  also 
facilities  and  privileges  which  assured  them  that  the  loan 
funds  should  be  so  expended  that  the  mortgaged  property 
would  constitute  a  sufficient  security.  In  addition  to  the 
share  in  the  surplus  profits  over  an  adequate  return  of 
revenues  from  the  road,  ordinarily  a  government-guaran- 
teed 5  per  cent  interest,  at  which  money  was  borrowed,  must 
be  paid  to  the  syndicate.  In  floating  the  loan  the  syndicate 
received  the  profits  which  were  represented  by  the  difference 
between  the  issue  price  and  the  price  which  the  Government 
agreed  to  take  for  each  £  100  bonds,  after  deducting  all  pre- 
liminary expenses,  cost  of  issue,  underwriting,  etc.  Further- 
more the  syndicate  usually  acted  as  purchasing  agents  for 
the  supply  of  materials  and  were  entitled  to  a  commission 
of  a  certain  percentage  on  the  cost.  It  was  also  usually 
stipulated  that  no  further  loan  was  to  be  raised  on  the 
same  security  except  through  the  same  syndicate,  i.  <?.,  dur- 
ing the  life  of  the  agreement  the  syndicate  was  insured  by 
China  that  the  road  should  not  be  alienated,  or  rather  that 
the  syndicate  should  be  given  a  lien  on  the  road.  The  loan 
was  to  be  redeemed  only  after  a  certain  period  by  paying  a 
premium  (if  after  a  shorter  period),  or  at  par  (if  after  a 
longer  period),  or  by  a  special  arrangement  with  the  syndi- 
cate if  the  above  two  conditions  were  not  provided. 

These  general  provisions  found  in  the  early  railway  loan 
contracts  were  not  made  without  reluctance  on  the  part  of 
the  Government.  Some  of  these  contracts  are  still  work- 
ing.    Later  on,  however,  as  we  shall  see  in  the  third  period 


293]      RAILll'Ays  BUILT  WITH  FOREIGN  CAPITAL  65 

of  railway  development,  when  contracting  new  loans  the 
Government  succeeded  after  much  trouble  in  modifying 
some  of  these  provisions,  especially  the  most  notorious  ones. 
Let  us  now  study  in  greater  detail  the  various  railways  for 
the  construction  of  which  loan  agreements  were  concluded 
on  the  above  old  principles,  and  the  various  important  events 
connected  therewith. 

THE  BRITISH  INTERESTS 

/.   The  Chinese  Government  Railways  of  North  China 

We  have  already  traced  the  development  of  this  system 
up  to  the  time  when  the  Chino-Japanese  War  broke  out. 
Here  we  are  going  to  say  something  about  its  extension  to 
Hsinmintun.  Newchwang  and  Peking. 

ATteF  the-  war  with  Japan  the  line  wTas  extended  to 
FengtaTandTrom  there  to  Macrnapu,  near  Peking.  Mean- 
while, the  China  Railway  Company  which  owned  the  Tien- 
tsin-Kuyeh  section  was  bought  up  by  the  Imperial  Railway 
Administration,  by  reimbursing  its  shareholders  with  gov- 
ernment bonds  bearing  5  per  cent  interest  for  their  scrip. 

Up  to  that  time  the  Imperial  Railway  Administration 
had  already  owed  the  Hongkong  and  Shanghai  Banking 
Corporation  Tls.  1,240,000;  the  Russo-Chinese  Bank,  Tls. 
600,000;  and  the  Deutsche-Asiatische  Bank,  Tls.  700,000. 
In  order  to  take  up  these  liabilities  and  carry  on  the  exten- 
sion to  Hsinmintun  (in  Manchuria),  Mr.  Hu  Yen  Min. 
the  Governor  of  Peking  and  Administrator  of  the  road,  de- 
cided to  float  through  the  British  and  Chinese  Corporation  l 
a  loan  of  Tls.  16,000,000,  or  £  2,300,000,  "  for  the  construc- 
tion of  a  railway  line  from  Chunghousuo  to  Hsinmintun, 

1  The  British  and  Chinese  Corporation  is  a  syndicate  formed  by  the 
Hongkong  &  Shanghai  Banking  Corp.  and  the  firm  of  Messrs.  Jardine 
&  Matheson  &  Co.  for  1  .  British  interests  in  China. 


66  RAILWAY  PROBLEMS  IN  CHINA  [294 

and  a  branch  line  to  Yingkow  (opposite  Newchwang),  and 
for  the  redemption  of  previous  loans  to  the  Tientsin-Shan- 
haikwan  and  Tientsin-Lukouchiao  lines."  The  final  agree- 
ment *  was  then  signed  on  October  10,  1898,  with  the  British 
and  Chinese  Corporation. 

Under  the  terms  of  this  agreement  the  British  endeavored 
to  establish  British  railway  principles  and  to  create  a  mono- 
poly for  the  supply  of  materials  and  so  forth.  The  essential 
points  in  this  agreement  are  as  follow : 

1.  The  loan  was  to  be  the  first  charge  upon  the  security 
of  the  entire  property  between  Peking  and  Shanhaikwan, 
and  on  the  freights  and  earnings  of  the  new  lines  when 
constructed. 

2.  In  addition  to  the  above  the  Chinese  Government  was 
made  to  declare  itself  responsible  for  the  payment  of  the 
principal  and  interest  at  due  date;  and  in  the  event  of  the 
Chinese  Government  being  unable  to  pay  the  principal  and 
interest  the  railway  line  and  entire  property  were  to  be 
handed  over  to  the  Corporation. 

3.  No  further  loan  was  to  be  raised  on  the  same  security 
except  through  the  Corporation;  during  the  life  of  the  loan 
the  lines  in  the  agreement  were  never  to  be  alienated  or 
parted  with. 

4.  The  life  of  the  loan  was  to  be  forty-five  years. 

5.  Repayment  of  principal  commenced  with  the  sixth  year 
in  forty  equal  annual  instalments.  Extra  drawings  (by  lot) 
for  redemption  might  be  called  by  paying  20  per  cent  pre- 
mium on  the  par  value  of  the  bonds.  China  engaged  her- 
self not  to  redeem  or  convert  the  loan  except  as  provided 
in  the  agreement. 

6.  The  price  of  the  loan  to  China  was  to  be  90,  but  the 

1  Cf.  supra,  pp.  48  and  63.  Notice  that  the  final  agreement  was  signed 
with  the  British  &  Chinese  Corporation,  not  with  Hongkong  &  Shang- 
hai Bank. 


295]      RAILWAYS  BUILT  WITH  FOREIGN  CAPITAL  6/ 

Corporation  had  authority  to  reduce  it  to  88  at  its  own  dis- 
cretion in  case  the  market  proved  unfavorable. 

7.  During  the  currency  of  the  loan  the  chief  engineer 
of  the  railway  should  be  a  British  subject,  and  the  principal 
members  of  the  railway  staff  should  be  Europeans,  who 
could  be  appointed  by  the  Chinese  Administrator-General, 
but  dismissed  only  in  the  event  of  misconduct  or  incom- 
petency, after  consultation  with  the  chief  engineer. 

8.  A  European  accountant  was  to  be  appointed  by  the 
syndicate  with  full  power  to  organize  and  direct  the  keep- 
ing of  the  railway  accounts,  and  to  act  with  the  Administra- 
tor-General and  the  chief  engineer  in  the  supervision  of 
receipts  and  expenditures. 

From  the  conditions  prescribed  above  we  see  that  the 
loan  was  quite  amply  secured  and  safeguarded — probably 
more  amply  than  any  loan  of  such  a  nature  in  the  world. 
In  addition  to  the  mortgage  on  the  property  a  government 
guarantee  was  required;  and  the  British  engineer-in-chief 
has  practical  control  of  all  affairs. 

Seeing  so  many  advantageous  terms  given  to  the  con- 
cessionaire, the  Russian  Government  made  an  official  pro- 
test on  the  ground  that  the  appointment  of  the  chief  engineer 
and  accountant  would  constitute  "  foreign  control  of  the 
line  "  and  that  it  would  interfere  with  Russian  rights  in 
Manchuria.  In  the  meantime  the  Russo-Chinese  Bank  also 
entered  into  competition  to  handle  the  loan  on  more  favor- 
able terms  to  China.  Subsequently,  as  we  have  seen,  the 
matter  was  adjusted  by  defining  the  respective  railway 
spheres  of  interest. 

After  this  controversy  was  over  construction  work  was 
pushed  on  very  rapidly.  By  February,  1900,  the  line  was 
extended  to  a  point  thirty  miles  beyond  Yingkow.  From 
Kaopangtze  the  line  was  also  extended  further  for  twenty 
miles.     Then  the  Boxer  trouble  broke  out,  the  construction 


68  RAILWAY  PROBLEMS  IN  CHINA  [296 

program  was  greatly  interfered  with,  and  many  parts  of 
the  line  were  torn  up. 

The  Boxer  trouble  brought  the  invasion  of  the  allies  into 
Peking  as  well  as  international  complications  over  the  rail- 
way line.  The  Russians  assumed  control  of  the  Tonghu- 
Yangtsun  (north  of  Tientsin)  section,  while  the  British 
soldiers  controlled  the  Fengtai  station,  the  north  end  of  the 
line.  The  Russians  then  proposed  that  the  Germans  should 
take  charge  of  the  Peking- Yangtsun  section  and  the  Rus- 
sians manage  the  Yangtsun-Shanhaikwan  section.  This 
aroused  the  British,  who  took  quick  action  at  once  by  landing 
a  force  at  Shanhaikwan  in  September.  Following  on  the 
heels  of  the  British  the  Russians  also  sent  a  force  there  and 
claimed  the  section  from  Tonghu  to  Newchwang  by  right 
of  conquest.  Thus  conflicts  of  interests  were  precipitated 
among  the  allies.  The  relations  between  Great  Britain 
and  Russia  were  especially  strained.  In  1901,  conferences  1 
were  held  and  the  different  Powers  concluded  an  agreement 
by  which  the  Russians  retired  and  the  British  Railway  Ad- 
ministration was  given  the  control  of  the  Shanhaikwan- 
Peking  section.  By  the  end  of  1902,  the  British  were  also  in 
control  of  the  Shanhaikwan-Newchwang  section.  Later 
on,  the  whole  road  was  turned  over  to  the  Chinese  Imperial 
Railway  Administration. 

This  is  the  most  prosperous  line  in  China.  Traffic  re- 
ceipts increased  by  leaps  and  bounds.  The  financial  basis 
of  the  road  is  very  firm.  Now.  the  Chinese  share  holdings 
exceed  the  British  loan  participation  in  the  capital  of  the 
road,  and  the  Government  has  endeavored  from  time  to 
time  to  secure  a  little  more  right  to  exercise  a  voice  in  the 
control  of  the  road.  With  the  profits  of  the  road,  the 
Peking-Kalgan  Railway  was  built  by  the  Government,  en- 

1  British  Blue  Book,  China,  no.  7  (1901),  127  pages. 


297]      RAILWAYS  BUILT  WITH  FOREIGN  CAPITAL  fig 

gineering  works  were  erected  for  constructing  bridges,  while 
cars,  locomotives,  and  even  several  short  branch  lines  were 
also  built.  The  Tangshan  Railway  and  Mining  College  is 
also  partly  supported  by  this  road. 

//.   The  Shanghai-Nanking  Railway 

On  May  13,  1898,  the  preliminary  agreement  for  the 
acquisition  of  a  loan  for  the  construction  of  this  line  was 
signed  between  Sheng-Hsuan-hwai,  then  Director-General 
of  the  Chinese  Imperial  Railway  Administration,  and  the 
British  and  Chinese  Corporation,  at  Shanghai.  On  July 
9,  1903,  the  final  agreement  *  was  concluded  between  the 
same  parties.  The  latter  provided  for  the  issue  of  a  sterling 
loan  for  an  amount  of  not  more  than  £  3,250,000.  The 
bonds  were  to  be  issued  for  the  entire  sum  and  were  similar 
to  those  of  the  Chinese  Government  Railway  of  North 
China,  with  the  railway  as  first  mortgage  security  therefor. 
The  price  agreed  upon  for  the  loan  was  90  per  cent  of  the 
nominal  value  of  the  bonds  which  bear  interest  at  5  per  cent 
per  annum  on  their  nominal  value  payable  half-yearly.  The 
life  of  the  loan  was  to  be  fifty  years.  Before  25  years  from 
the  date  they  were  originally  issued  the  bonds  were  to  be 
redeemable  at  £  io2]/2,  and  after  25  years  at  par. 

The  general  principles  outlined  in  the  final  agreement 
were  practically  modeled  after  those  of  the  Chinese  Govern- 
ment Railways  of  North  China,  with  the  exception  that 
they  were  described  in  greater  detail  and  a  few  additions 
were  made.  In  addition  to  the  Chief  Engineer  and  the 
Director-General,  a  Board  of  Commissioners  was  created 
for  surveying  the  construction  and  operation  of  the  railway. 

'For  English  text  see  Kent,  Railway  Enterprise  in  China,  Appendix  D. 
For  Chinese  text  see  Chung  Hwa  Fa  Kwei  Tai  Tsueucn,  treaties, 
vol.  vi,  leaves  5-17. 


J 


jO  RAILWAY  PROBLEMS  IN  CHINA  [298 

The  members  of  the  Board  were  to  be  five  in  number,  of 
whom  two  were  to  be  Chinese — one  to  be  appointed  by  the 
Director-General  and  one  by  the  Director-General  in  con- 
sultation with  the  high  authorities  of  the  province  through 
which  the  line  passes ;  and  besides  the  Chief  Engineer,  who 
was  to  be  nominated  by  the  Corporation  and  approved  by 
the  Director-General,  there  would  also  be  two  British  mem- 
bers selected  and  appointed  by  the  Corporation.  It  was 
clearly  stipulated  in  this  agreement  that  after  deducting  from 
the  income  of  the  railway  the  working  and  other  expenses, 
the  Corporation  was  to  receive  20  per  cent  of  the  net  profits, 
to  be  represented  by  or  in  form  of  certificates  to  an  amount 
equal  to  one-fifth  of  the  cost  of  the  line. 

Although  it  was  stipulated  that  the  loan  was  to  be  £  3,- 
250,000,  only  £  2,900,000  has  been  issued  in  two  instalments. 
In  view  of  the  extravagance  entailed  in  increasing  the  size 
of  the  loan,  the  expenses  in  its  underwriting  and  floating  and 
the  commission  on  purchases,  the  Government  authorized  the 
balance  of  the  loan  and  any  further  funds  needed  for  the 
completion  and  operation  of  the  line  to  be  supplied  from 
the  Treasury. 

The  entire  road  was  completed  by  March,  1908.  It  was 
fairly  substantially  built,  but  the  trade  conditions  of  the 
region  it  serves  do  not  demand  such  an  expensive  road. 
The  capital  expenditure  on  the  construction  of  the  line  and 
herefore  the  interest  on  the  loan  are  so  great  that  there  is 
always  a  large  deficit  between  the  fixed  charges  and  the 
earnings  in  spite  of  strenuous  efforts  made  to  reduce  it. 
The  Government  has  to  bear  this  heavy  loss. 

As  a  result  of  the  lessons  learnt  from  the  administration 
of  this  road,  in  which  the  foreign  chief  engineer  has  sole 
control  of  the  expenditure  of  the  loan  funds,  China  has 
changed  her  attitude  towards  all  foreign  loans,  especially 
British  loans.     This  explains  partly  the  reason  why  China, 


299]      RAILWAYS  BUILT  WITH  FOREIGX  CAPITAL  yi 

in  signing  new  loan  agreements  of  any  importance  after 
1905,  insisted  upon  the  modification  of  tbg  old  British 
principles. 

///.  The  Tao-Ching  Railway 

This  railway  is  sometimes  called  the  Peking  Syndicate 
Railway^  The  Peking  Syndicate,  Limited,  was  registered 
on  March  17,  1897,  in  London,  for  the  purpose  of  obtain- 
ing and  developing  concessions  for  mining,  railway  and 
other  undertakings  in  China.  It  was  originally  organized 
by  British  and  Italian  financiers  with  a  capital  of  £  20.000 
which  was  later  increased  to  £1,520,000.  Now  the  British 
interests  practically  predominates  the  syndicate  entirely. 

In  May,  1898,  the  Shansi  Bureau  of  Trade  signed  an 
agreement  with  the  syndicate  for  working  coal  and  iron 
mines  in  five  different  places  *  in  the  Shansi  province ;  and 
in  June,  the  Yu-feng  Company  signed  a  mining  agreement 
on  similar  terms  with  the  said  syndicate  for  mining  in 
Honan  province  in  the  neighborhood  of  Huai  Ching  and 
north  of  the  Yellow  River.  Both  of  these  agreements  were 
ratified  by  the  late  Government. 

It  was  stated  in  Art.  17  of  the  said  agreements  that  the 
Peking  Syndicate,  on  notifying  the  Governor  of  the  pro- 
vince concerned,  should  be  permitted  to  build  a  railway 
connecting  the  mines  with  a  main  line  or  with  water  navi- 
gation. In  June  1902,  when  the  coal  mines  in  Sui-wu  Hsien 
of  Honan  province  were  about  to  be  opened,  the  syndicate 
gave  such  notice  to  the  Governor  and  obtained  permission 
to  build  a  railway  from  these  mines  to  Taokow.  a  port 
the  Wei  River.  In  1905,  the  line,  extending  from  Taokow 
to  Pashan  (near  Chinghua  Chen)  in  the  Province  of  Honan 
and  covering  a  distance  of  about  90^  miles,  was  completed. 

1  Yu-Hsien,  Pingting-chow,  Luanfu,  Tsecliowfu,  and  Pingyangfu. 


72  RAILWAY  PROBLEMS  IN  CHINA  [300 

At  that  time  there  arose  an  ambiguity  in  the  interpreta- 
tion of  the  seventeenth  clause  of  the  concession  agreements, 
which  reads : 

Whenever  it  may  be  necessary  for  any  mine  to  make  roads, 
build  bridges,  open  or  deepen  rivers  and  canals,  or  construct 
branch  railways  to  connect  with  main  lines  or  with  water  navi- 
gation to  facilitate  transport  of  Shansi  coal,  iron  and  all  other 
mineral  products  from  the  province,  the  Syndicate  on  report- 
ing to  the  Government  of  Shansi  is  authorized  to  proceed  with 
the  works,  using  its  own  capital  without  asking  for  Govern- 
ment funds. 

This  clause  was  interpreted  by  the  government  officials  as 
restricting  the  company  to  local  requirements,  but  the  syndi- 
cate argued  that  they  were  entitled  by  it  to  the  right  not 
only  to  build  railways  in  the  immediate  localities  of  the 
mines  but  also  to  build  roads  at  the  discretion  of  the  syndi- 
cate, in  other  words,  to  build  lines  to  any  market  in  China 
at  their  option,  if  their  argument  is  followed  to  its  logical 
end. 

As  a  matter  of  fact,  as  far  back  as  1898,  besides  the  sur- 
vey on  the  Taokow-Pashan-Tzechowfu  line,  several  other 
surveys  were  conducted  by  the  surveying  parties  sent  out 
by  the  syndicate  in  order  to  find  a  line  to  the  Yangtsze. 
They  found  the  route  from  Taokow  to  Pukow  the  most 
desirable  and  made  a  claim  on  it. 

About  the  same  time,  the  British  and  Chinese  Corpora- 
tion, a  rival  syndicate  having  the  support  of  the  British 
government,  secured  the  concession  for  the  Tientsin-Pukow 
line.  In  such  a  situation  the  interests  of  the  two  syndicates 
necessarily  came  into  conflict.  Subsequently,  this  difficulty 
was  solved  by  a  combination  of  the  two  companies  and  an 
agreement  to  equal  participation  in  all  future  railway  de- 
velopment north  of  the  Yangtsze. 


3oi]      RAILWAYS  BUILT  WITH  FOREIGN  CAPITAL  73 

Having  watched  for  some  time  the  complicated  develop- 
ment of  the  Peking  Syndicate's  concession,  and  realizing 
their  error  in  committing  themselves  to  such  an  indefinite 
agreement,  secured  at  a  time  when  they  were  ignorant  of 
its  value,  the  government  officials  set  to  work  to  undo  their 
mistakes  by  purchasing  the  Taokow-Chinghua  Railway  at 
its  construction  value.  To  this  end  an  agreement  *  was 
entered  on  July  3,  1905,  in  which  the  Government  agreed 
to  take  over  the  line  from  the  syndicate  and  to  give  in  pay- 
ment gold  bonds  bearing  interest  at  5  per  cent,  and  per- 
mitted the  control  of  the  road  to  remain  with  the  syndicate 
until  the  bonds  are  redeemed. 

The  cost  of  constructing  the  road  was  estimated  at 
£  614,000  and  is  represented  by  a  loan  of  £  700,000  which 
has  been  accepted  by  the  syndicate  at  90.  The  loan  runs 
for  thirty  years  and  is  redeemable  after  191 6.  While  the 
line  has  been  handed  over  to  the  Chinese  Railway  Adminis- 
tration it  continues  to  be  operated  by  the  syndicate  which 
is  to  receive  20  per  cent  of  the  net  profits.  It  was  also 
stipulated  in  the  loan  agreement  that  when  the  syndicate 
has  fixed  a  date  for  opening  mines  in  the  neighborhood  of 
Tsechow,  the  syndicate  will  provide  funds  for  the  construc- 
tion, etc.,  of  the  Pashan-Tsechow  section.  It  may  be  added 
here  that  the  Tao-Ching  line  was  originally  not  a  loan-built 
road,  because  the  loan  was  contracted,  after  the  completion 
of  the  road  by  the  syndicate,  to  buy  out  the  syndicate's 
absolute  control  of  the  line. 

Having  seen  the  danger  of  the  indefinite  agreement,  the 
provincial  authorities,  at  the  same  time,  endeavored  to  re- 
purchase the  Shansi  rights  from  the  syndicate.  After  much 
bargaining  with  the  syndicate  and  long  diplomatic  negotia- 
tions with  the  British  minister  at  Peking  they  succeeded  in 

1  For    English    text    see    Supplement    to    The    Far   Eastern    Review, 
China's  Foreign  Railway  Agreements,  Nov.,  1909,  pp.  6-7. 


74  RAILWAY  PROBLEMS  IN  CHINA  [302 

having  the  syndicate  surrender  its  rights  of  mining  in 
Shansi  by  offering  Tls.  2,750,000.  On  the  other  hand,  the 
syndicate,  in  making  an  agreement  with  the  Shansi  authori- 
ties, obtained  the  promise  of  a  preferential  right  of  supply 
of  capital  for  future  enterprises.  The  agreement  provides 
that  "  if  hereafter  foreign  capital  is  required  for  mining, 
iron  smelting  or  transport  of  materials,  the  Peking  Syndi- 
cate shall  have  the  first  option."  By  "  transport  of  ma- 
terials "  it  has  been  presumed  by  the  directors  of  the  syndi- 
cate to  mean  railways.  Here  is  the  germ  of  possible  future 
dispute. 

THE  BELGIAN,   FRENCH   AND  RUSSIAN   INTERESTS 

/.   The  P  eking -Hankozv  Railway 

This  was  the  first  railroad  for  the  construction  of  which 
the  Government  formally  invited  the  co-operation  of  foreign 
capitalists.  As  we  have  seen  in  Chapter  III,  page  35.  a 
Belgian  Syndicate,  willing  to  accept  all  terms  offered  by  the 
Government  without  question,  secured  the  concession  by 
underbidding  the  American  and  British  capitalists.  The 
Chinese  Railway  Company,  a  government  organization,1 
had  already  raised  a  capital  of  thirteen  millions  of  taels  in 
China.  On  May  27,  1897,  a  provisional  contract  was 
signed  between  the  Chinese  Railway  Company  and  the 
Societe  Unancierc  ct  industrielle  beige  en  Chine,  for  a  loan 
of  112,500,000  francs  bearing  interest  at  4  per  cent.  As 
the  Belgians  found  out  that  the  loan  could  not  be  success- 
fully floated  on  this  basis,  on  July  21  an  additional  protocol 
to  the  contract  was  concluded  between  Sheng  Hsuan-huai, 
the  Director-General  of  the  Chinese  Railway  Company,  and 
the  representatives  of  the  Belgian  Syndicate,  bringing  the 
interest  up  to  4.4  per  cent.     When  the  syndicate  wanted  to 

1  Cf.  supra,  pp.  34-35- 


wl      RAILWAYS  BUILT  WITH  FOREIGN  CAPITAL  -- 

finance  the  project  in  Europe,  the  agreement  was  found  still 
unworkable.  With  the  help  of  diplomatic  pressure,  in 
which  they  were  assisted  by  Russia  and  France,  the  Belgians 
secured  improved  conditions  from  the  Government  by  re- 
vising the  original  arrangement.  On  June  26,  1898,  two 
more  contracts,  a  loan  contract  and  an  operating  contract, 
were  signed  with  the  Societe  d'Etudc  de  Chemins  de  fer 
en  Chine.1  in  addition  to  the  original  contract  and  protocol. 

The  agreement 2  in  its  final  form  provided  for  the  issue 
of  a  loan  of  a  nominal  value  of  112,500,000  francs  (£4,- 
500,000),  at  90,  represented  by  225,000  bonds  of  500  francs 
gold,  bearing  interest  at  5  per  cent  and  to  be  amortized  with- 
in twenty  years  after  1909.  The  Government  was  given 
the  right  to  repay  the  loan  in  or  after  1907,  thereby  cancel- 
ling the  agreement.  The  bonds  were  secured  on  the  net 
revenues  of  the  line  and  the  gross  revenues  of  the  Chinese 
Government  (a  new  point  different  from  the  British  con- 
tracts where  the  whole  road  was  pledged  as  security).  Dur- 
ing the  currency  of  the  loan  the  Russo-Chinese  Bank  was  to 
take  charge  of  all  financial  arrangements.  The  13,000,000 
taels  of  the  Chinese  Railway  Company  was  in  the  first  place 
to  be  applied  to  the  construction  and  to  the  putting  in  com- 
plete working  order  of  the  Lukouchiao-Paoting  section  of 
the  line. 

The  syndicate  has  the  right  to  direct  the  construction  of 
the  line.  The  work  of  construction  and  technical  control 
was  placed  under  a  chief  engineer  appointed  by  the  syndi- 
cate, subordinate  to  the  Director-General.  This  chief  en- 
gineer could  select  the  foreign  railway  staff,  but  appoint- 
ments could  only  be  made  by  the  Director-General,  who  also 

1  A  Franco-Belgian  syndicate  in  which  the  Belgian  share  was  only 
40  per  cent.  See  Documents  Diplomatique s,  Chine,  1898-1899,  pp.  140- 
146  (published,  Paris,  1900). 

2  Laboulaye,  Les  Chemins  de  fer  de  Chine  (Paris,  191 1),  pp.  107-120. 


76  RAILWAY  PROBLEMS  IN  CHINA  [304 

had  absolute  power  of  dismissal  for  insubordination,  drunk- 
enness, bad  conduct,  incapacity  or  carelessness,  without  the 
sanction  of  the  chief  engineer  (a  far  more  favorable  term 
than  that  stipulated  in  British  contracts). 

The  Societe  d'Etude  was  promised  that,  with  the  excep- 
tion of  what  could  be  supplied  by  the  Hanyang  Works  (a 
Chinese  semi-official  iron  and  steel  establishment),  all  ma- 
terials and  supplies  necessary  for  the  construction  and  work- 
ing of  the  railroad  should  be  ordered,  from  the  Societe 
d'Etude,  which  would  fill  the  orders  under  the  best  possible 
terms  subject  to  the  approval  of  the  Chinese  Director- 
General.  A  commission  of  5  per  cent  was  to  be  paid  to 
the  syndicate  on  all  purchases  abroad. 

Under  the  terms  of  the  operating  contract,  the  Societe 
d'Etude  was  to  take  over  the  working  of  the  line  as  soon  as 
each  section  was  completed,  following  its  final  acceptance 
by  the  Imperial  Administration  of  Chinese  Railways.  The 
syndicate  or  its  representatives  were  to  organize  the  various 
services ;  to  have  absolute  right  to  hire  and  dismiss  the  per- 
sonnel for  the  services ;  to  make  all  purchases  necessary  for 
operating,  maintaining  or  repairing  the  road;  to  fix  the 
schedule  of  rates  in  the  terms  of  the  concession  contracts; 
and  to  collect  revenues  of  all  kinds  and  pay  the  operating 
and  managing  expenses  of  the  company.  These  measures, 
taken  for  operating  the  line,  were  to  be  submitted,  for  con- 
sultative purposes,  to  the  Director-General  of  Chinese  Rail- 
ways. The  Chinese  Railway  Company,  however,  was  to 
have  absolute  right  of  control  over  the  receipts  and  ex- 
penses. By  the  operating  contract  it  was  also  agreed  that 
the  concessionaires  were  entitled  to  20  per  cent  of  the  net 
profits  of  the  undertaking  after  the  payment  of  all  expenses 
and  the  bond  interest. 

In  March,  1899,  the  loan  was  issued  at  the  same  time  at 
Brussels  and  Paris.     Nearly  four-fifths  of  it  was  subscribed 


305]      RAILWAYS  BUILT  WITH  FOREIGN  CAPITAL  77 

in  France.  Thus,  nominally,  the  railway  was  a  Belgian 
concession ;  actually  French  interests  dominated  the  line  and 
the  Russians  had  also  participated  in  the  project.  In  this 
connection  it  was  confirmed  that  French  and  Russian  in- 
fluences combined  to  the  furtherance  of  the  Belgian  syndi- 
cate's interests  during  the  negotiations  for  the  loan,  with 
the  ultimate  purpose  of  securing  a  link  in  the  Peking- 
Hankow  line  for  a  railway  through  the  country. 

As  a  whole,  the  terms  of  the  agreement  were  much  more 
favorable  to  China  than  those  of  the  British  agreements,  in 
that  they  gave  the  Chinese  authorities  greater  control  of  the 
property.  The  provisions  of  the  agreement,  which  gave 
China  absolute  control  of  expenditure  of  funds  and  the 
privilege  to  redeem  the  loan  at  the  end  of  ten  years,  placed 
an  effective  check  on  any  ambitious  scheme  to  dominate  the 
railway  situation  by  Belgian,  French  or  Russian  interests. 

By  the  fall  of  1905,  the  line  was  opened  for  traffic,  with 
the  exception  of  the  bridge  over  the  Yellow  River,  the  con- 
struction of  which  presented  many  engineering  problems. 
The  length  of  the  great  bridge  is  3.03  kilometers,  or  about 
2  miles,  consisting  of  102  spans,  a  part  of  them  65  and 
the  remainder  98  feet  in  length.  The  length  of  the  line 
is  about  756  miles. 

By  1907,  the  road  was  earning  large  profits.  The  Gov- 
ernment, considering  the  great  future  value  and  probable 
profits  of  the  line,  decided  on  exercising  its  right  to  repur- 
chase the  road  according  to  the  provisions  of  the  agreement, 
in  order  to  secure  absolute  possession  of  the  line  and  elimin- 
ate the  payment  of  the  great  percentage  of  profit.  Negotia- 
tions were  then  entered  into  with  the  Belgian  syndicate 
with  a  view  of  issuing  a  new  loan  to  redeem  the  old  one. 
At  that  time  the  capital  of  the  Government  for  the  Lukao- 
chiao-Paoting  line  was  Tls.  5,620,000,  and  part  of  the  ori- 
ginal Belgian  loan  was  already  paid  off.     It  was  found  that 


78  RAILWAY  PROBLEMS  IN  CHINA  [306 

it  was  necessary  only  to  raise  a  loan  of  50,710,000  francs 
to  redeem  the  old  loan.  The  negotiations  were  successful. 
On  January  1,  1909,  the  Belgian  interest  was  bought  out 
and  the  line  wras  taken  over  by  the  Government  authorities 
at  Peking.  In  this  transaction,  the  Government  promised 
the  Belgian  syndicate  an  extra  bonus  of  705,000  francs  as 
soon  as  the  accounts  of  the  road  were  audited  by  a  commis- 
sion consisting  of  representatives  of  the  Government  and 
of  the  syndicate.  On  the  payment  of  the  bonds,  the  syndi- 
cate's connection  with  the  line  ceased  entirely. 

//.  The  Pcinlo  Railway 

This  line  runs  across  the  Peking-Hankow  road  from 
Kaifengfu  to  Loyang  (Honanfu)  in  the  Province  of  Honan. 
In  1899,  the  construction  of  this  line  was  proposed  by  the 
Government.  In  1902,  negotiations  for  a  loan  took  definite 
form  and  in  1904  a  final  contract  1  was  concluded  in 
Shanghai  between  Sheng  Hsuan-huai,  the  Director-General 
of  the  Imperial  Railways,  and  the  representative  of  the 
C ompagnic  Generate  de  Chemins  de  fer  ct  de  Tramzcays 
en  Chine,  Monsieur  Armand  Rouffart. 

The  contract  provides  for  a  loan  of  £1,000,000  or  25,- 
000,000  francs,  issued  at  90,  bearing  interest  at  5  per  cent, 
secured  by  the  road  and  guaranteed  by  the  Government, 
which  has  the  privilege  of  redeeming  it  in  twenty-five  years. 
After  ten  years,  the  date  of  first  amortization,  it  can  be 
refunded  or  converted.  In  the  agreement  the  same  general 
rule  as  applied  to  the  Peking-Hankow  road  was  practically 
adopted  for  the  ordering  and  purchasing  of  materials  and 
the  engagement  of  the  chief  engineer  and  foreign  staff. 
The  conditions  regarding  the  management  of  the  road  and 

1  Chung  Hwa  Fa  Kwei  Tai  Tsueuen,  treaties,  vol.  xii,  leaves  24-33. 
For  French  text  see  Laboulaye,  Les  Chemins  de  fer  de  Chine,  pp. 
154-170. 


307]      RAILWAYS  BUILT  WITH  FOREIGN  CAPITAL  79 

the  supervision  of  accounts  were  also  practically  similar  to 
those  of  the  Peking-Hankow  loan  contract.  A  significant 
point  provided  in  the  agreement  is  that  the  Belgian  com- 
pany secured  an  option  x  to  extend  the  line  to  Si-ngan  Fu, 
the  capital  city  of  Shensi  province. 

The  road  was  completed  some  years  ago.  The  outcome 
of  the  contract  was  fairly  satisfactory  to  both  parties.  The 
road  is  about  120  miles  long  and  is  now  in  Chinese  control. 

///.  The   Chcng-Tai  Railway 

This  is  a  branch  line  of  the  Peking-Hankow  Railroad, 
running  from  Chengting  to  Taiyuanfu.  In  1897,  the  Russo- 
Chinese  Bank  and  the  Comptoir  d'Escompic  sent  a  French 
engineer  into  the  Shansi  province  to  study  its  mineral  re- 
sources and  determine  the  route  of  a  future  railway.  In 
May,  1898,  a  preliminary  agreement  for  a  loan  of  25,- 
000,000  francs  for  the  construction  of  this  line  was  ap- 
proved by  the  Government.  On  a  re-survey,  the  loan  was 
increased  to  40,000,000  francs,  nominal  value,  owing  to  the 
difficult  engineering  works  to  be  encountered  in  traversing 
the  very  mountainous  country.  The  final  agreement '  was 
then  formally  ratified  on  September  7,  1902,  by  an  Im- 
perial Decree. 

According  to  the  agreement  the  bonds  were  to  be  issued 
at  90,  bearing  interest  at  5  per  cent  and  redeemable  in 
twenty-five  years.  The  loan  is  secured  on  the  undertaking 
and  guaranteed  by  the  Chinese  Government. 

All  the  construction  and  works  were  executed  under  the 
supervision  of  the  Imperial  Chinese  Railway  Company. 
The  Russo-Chinese  Bank  engaged  to  use  local  materials 

1  Cf.  infra,  Lung-Tsing-u-Hai  Ry. 

2  Chung  Ewa  Fa  Kzvci  Tai  Tsucucn,  treaties,  vol.  xii,  leaves  1-7. 
For  French  text  see  Laboulaye,  Lcs  Chemins  de  fer  dc  Chine,  pp. 
124-137. 


80  RAILWAY  PROBLEMS  IN  CHINA  [30S 

and  labor  as  far  as  possible,  and  in  any  case  to  spend  the 
greater  part  of  the  loan  on  the  spot;  but  in  case  materials 
were  to  be  procured  abroad,  they  must  be  purchased  by  the 
Bank  from  Russia  and  France  at  prices  settled  by  reference 
of  the  company  to  the  Chinese  Ministers  in  Russia  and 
France. 

The  construction  of  the  line  was  turned  over  to  the 
Belgian  syndicate  of  the  Peking-Hankow  line.  The  ad- 
ministration of  the  road  rested  with  the  Chinese  Railway 
Company.  A  foreign  Agent,  paid  by  the  company,  was  to 
be  present  at  all  meetings  of  the  managing  officers  and  to 
exercise  supervision  over  all  matters  of  accounts,  machinery, 
etc.     The  accounts  were  to  be  kept  after  foreign  methods. 

After  the  completion  of  the  railway  the  yearly  surplus, 
if  any,  left  after  the  payment  of  working  expenses  and 
"  official  profits,"  was  to  be  dealt  with  as  follows:  5-ioths 
to  the  Company;  should  this  5-ioths  amount  to  30,000 
taels  or  over,  the  salary  of  the  Superintendent  of  the  Chinese 
Railway  Company  would  be  paid  out  of  it;  if  the  5-ioths 
did  not  amount  to  Tls.  30,000,  the  salary  was  to  form  part 
of  the  working  expenses;  2-ioths  to  the  State;  i-ioth  to 
the  Shansi  Trade  Bureau  to  be  used  for  public  purposes ; 
and  the  remaining  2-ioths  to  the  Bank  during  the  currency 
of  the  loan. 

Construction  work  commenced  in  1903  and  the  road 
opened  for  through  traffic  in  1907.  Owing  to  the  moun- 
tains and  difficult  nature  of  the  country  which  the  line 
traverses,  a  meter  gauge  with  60  lb.  rail  was  adopted  in- 
stead of  a  standard  gauge.  The  difference  in  gauge  pro- 
hibits a  junction  with  the  main  line  (Peking-Hankow  line), 
and  the  interchange  of  cars,  compelling  the  complete  trans- 
fer of  through  freight  at  the  Chentow  terminal  (a  town, 
several  miles  to  the  south  of  Chingtingfu). 


309]      RAILWAYS  BUILT  WITH  FOREIGN  CAPITAL  8l 

THE  AMERICAN    INTERESTS 

The  Canton-Hankow  Railway 
When  the  American  financiers  were  forced  to  retire  from 
the  Peking-Hankow  deal  by  the  Belgian  syndicate  in  1897, 
the  Chinese  Government,  having  adopted  the  policy  of 
dividing  as  equally  as  possible  the  railway  rights  between 
the  different  Powers,  invited  the  American  financiers  to 
undertake  the  Canton-Hankow  line.  A  contract 1  was  then 
signed  in  April,  1898,  with  the  American  China  Develop- 
ment Company,  by  Dr.  Wu  Ting- fang  acting  as  represen- 
tative of  Mr.  Sheng  Hsuan-huai.  About  the  time  of  the 
execution  of  the  contract  the  Spanish-American  War  broke 
out,  and  nothing  further  was  done  until  after  the  con- 
clusion of  the  war  when,  in  the  following  autumn,  a  sur- 
veying party  headed  by  Mr.  Wm.  Barclay  Parsons  was 
sent  to  China.  After  the  survey  it  was  discovered  that  the 
cost,  originally  put  at  $20,000,000  gold,  had  been  under- 
estimated to  the  extent  of  nearly  100  per  cent.  The  com- 
pany therefore  determined  to  negotiate  a  supplementary 
agreement  in  order  to  modify  certain  terms  in  the  contract. 
After  overcoming  much  political  difficulty  and  opposition 
arrayed  against  him  by  the  French  and  the  Belgians,  Mr. 
Cary,  a  member  of  the  New  York  Bar,  supported  from 
Washington  and  Peking,  had  the  supplementary  agreement 
concluded  in  1900.  In  the  new  agreement2  the  following 
principal  modifications  of  terms  were  made : 

1.  An  increase  in  the  amount  of  the  loan  to  $40,000,000 
gold. 

2.  An  extension  of  the  time  for  completion  of  the  road 
from  three  to  five  years. 

3.  A   restriction  on  assignment,   in  regard   to  which  a 

1  British  Blue  Book,  China,  no.  1   (1899),  pp.  336-339- 

2  The  Canton-Hankow  Railway  Contracts,   published  by  the  Irving 
Press,  225  Fourth  ave.,  New  York  City,  in  1900. 


82  RAILWAY  PROBLEMS  IN  CHINA  [3IO 

clause  was  inserted  as  follows :  "  The  object  of  mak- 
ing this  supplemental  agreement  of  equal  force  with 
the  original  agreement  is  to  permit  the  benefits  being 
transmissible  by  the  American  Company  to  their  suc- 
cessors or  assigns,  but  the  Americans  cannot  transfer 
the  rights  of  this  agreement  to  other  nations  or  people 
of  other  nationality." 
According  to  the  final  agreement  the  loan  was  to  run 
for  50  years,  although  earlier  redemption  was  provided. 
Bonds,  which  were  secured  on  the  property  and  guaranteed 
by  the  Government,  were  to  be  issued  at  90  and  were  to 
bear  interest  at  5  per  cent.     The  American  Company  was 
voluntarily  given  by  the  Chinese  Government  absolute  power 
to  direct  construction  and  operation  of  the  line  and  to  con- 
trol the  expenditure  of  the  loan  funds.     At  the  same  time 
the  company  was  granted  20  per  cent  of  the  net  profits 
of  the  line  after  operation  for  a  number  of  years. 

When  the  American  syndicate  2  secured  this  advantageous 
agreement,  the  European  combination  set  to  work  to  un- 
dermine American  preponderance  by  purchasing  shares  in 
the  open  market  in  New  York  City.  The  unfortunate  death 
of  Senator  Brice,  a  man  of  great  energy  and  remarkable 
character,  which  qualities  had  attracted  the  original  sub- 
scribers to  the  syndicate,  caused  the  enterprise  to  lose  its 
chief  supporter  and  gave  the  Belgians  and  the  French  a 
freer  hand  to  accomplish  their  aim.  Among  those  as- 
sociated with  him  was  no  one  who  fully  shared  or  was 
able  to  carry  out  his  ambition  of   introducing  American 

1  The  American  Syndicate,  which  was  organized  by  the  late  U.  S. 
Senator  C.  S.  Brice  with  Wm.  Barclay  Parsons  as  chief  engineer  and 
Cary  and  Whitridge  as  attorneys,  was  composed  of  practically  all  the 
great  rival  financiers  of  New  York,  all  of  whom  signed  Senator 
Brice's  application  for  the  concession.  The  members  of  the  syndicate 
were  J.  P.  Morgan,  J.  D.  Rockefeller,  Mr.  Cassatt,  the  Vanderbilts, 
Mr.  Harriman,  Mr.  Gould,  Mr.  Sage,  Mr.  Hill,  'Sir  Wm.  Van  Home 
and  other  capitalists  and  leading  banking  firms. 


3i  i  ]      RAILWAYS  BUILT  WITH  FOREIGN  CAPITAL  83 

railroads  into  China.  Consequently,  the  Belgian  agents 
obtained  a  controlling  number  of  shares  in  the  company. 
Mr.  Parsons,  who  had  succeeded  to  the  presidency  of  the 
company  on  Senator  Brice's  death,  was  then  superseded  by 
General  Whittier,  the  agent  of  the  Belgian  syndicate  in 
New  York;  and  in  addition,  the  American  Manager  of  the 
company's  Shanghai  office  and  the  American  engineers  were 
recalled  and  replaced  by  Belgians. 

In  the  spring  of  1904,  China  protested  strongly  against 
the  situation  and  refused  to  recognize  the  Belgian  control 
of  the  company.  Through  the  efforts  of  J.  P.  Morgan 
&  Company,  a  majority  of  the  shares  were  again  brought 
under  American  control.1  But  after  that  several  months  of 
complete  inactivity  followed.  An  outcry  was  raised  among 
the  gentry  and  merchants  of  the  South,  demanding  the 
cancellation  of  the  concession.  Sheng  Hsuan-huai,  directed 
by  Viceroy  Chang  Chih-tung  who  had  taken  special  pre- 
caution to  prevent  Belgian  influence  extending  to  this  line 
before  the  concession  was  made,  then  insisted  that  the 
agreement  be  cancelled.  After  tedious  negotiations  the  line 
was  taken  over  by  the  Government  on  payment  of  $6,- 
750,000  gold.  Later,  the  Government  handed  the  road 
over  to  three  provincial  companies  which  were  to  undertake 
its  construction  separately  in  three  different  sections. 

The  American  Company  had  undertaken  two  surveys,  had 
built  32  miles  of  railway  (the  Samshui  branch),  and  had 
completed  50  miles  of  roadbed  at  the  Canton  end  of  the  main 
line.     They  claimed  an  expenditure  of  $3,000,000  gold  for 

1  According  to  Mr.  J.  C.  Fergusson's  report  the  stock  books  in  the 
different  N.  Y.  banking  offices  showed  that  6,000  outstanding  shares 
were  owned  by  American  citizens,  members  of  the  original  syndicate, 
1,004  by  a  French  banking  house  and  the  balance,  1,796,  by  Belgians. 
Mr.  Fergusson  was  Sheng's  foreign  secretary  despatched  to  the  U.  S. 
to  investigate  the  actual  situation  and  to  ascertain  the  cause  of  the 
delay. 


84  RAILWAY  PROBLEMS  IN  CHINA  fol2 

this  work  and  $3,750,000  as  compensation  for  the  loss  of 
valuable  rights,  making  in  all  $6,750,000  gold.  This  sum 
has  been  commented  upon  as  unduly  excessive.  In  fact, 
it  was  the  American  company  who  committed  the  breach 
of  faith  because  it  had  been  particularly  stipulated  in  the 
supplemental  agreement  that  no  rights  should  be  trans fered 
to  other  nationalities.  The  United  States  State  Depart- 
ment, however,  was  credited  with  not  having  brought  any 
diplomatic  pressure  to  bear  on  Peking  to  retain  commercial 
or  political  advantages  under  the  terms  of  the  concession. 
Such  an  attitude  taken  by  Washington  was  greatly  appre- 
ciated in  Peking.  The  United  States  has  always  been  looked 
upon  by  Peking  as  the  "  most  favored  nation."  As  a  matter 
of  fact,  the  Chinese  Government  had  granted  the  American 
company  more  favorable  terms  in  the  agreement  than  any 
other  concession,  except  perhaps  the  early  Peking-New- 
chwang  loan  contract. 

During  the  turmoil  of  demands  for  the  cancellation  of  the 
concession,  the  merchants  and  gentry  of  Kwangtung,  Hunan 
and  Hupeh  (through  which  the  line  passes)  promised  with 
great  enthusiasm  to  repurchase  the  American  interests  and 
to  raise  capital  in  the  country  to  build  the  line  themselves. 
But  when  the  time  came  for  payment  of  the  American  loan 
no  substantial  funds  were  forthcoming.  The  British  con- 
sul at  Hankow  then  proposed  to  Viceroy  Chang  to  offer  his 
service  to  obtain  a  British  loan  through  the  Hongkong  Gov- 
ernment to  redeem  the  American  interests.  The  negotia- 
tion for  the  loan  was  successful.  On  September  9,  1905, 
a  loan  agreement 1  was  concluded  for  a  loan  of  £  1,100,000 
bearing  interest  at  4^  per  cent,  redeemable  in  ten  years 
and  secured  by  the  opium  revenues  of  Kwangtung,  Hunan 
and  Hupeh. 

1  Chung  Hwa  Fa  Kwei  Tat  Tsueuen,  treaties,  vol.  xi,  pp.  20-24. 


313]      RAILWAYS  BUILT  WITH  FOREIGN  CAPITAL  8~ 

Gexeral  References 
I. — Official  Publications: 

China:  1.  Chung  Hwa  Fa  Kwei  Tax  Tsueuen  (Complete  set  of  Rules, 

Regulations,  Treatises,   etc.,  of  the  Republic  of  China),    (Shang- 
hai, 1913),  vols,  on  treaties. 
China:  2.  Kuang-su  Chong-yau,  (The  Emperor  Kuang-su's  Statepapers), 

vols.  11-26. 
France:  Documents  Diplomatiques,  China,  issued  by  the  Ministere  des 

Affaires  Estrangeres,  Paris,  vols,  of  the  years  1894-1901. 
Great   Britain :   British  Blue  Book,  China  Affairs,  vols,  of  the  years 

1898-1901  inclusive. 
The  United  States:  Monthly  Consular  Reports,  vols,  of  the  years  1894- 

1905. 
Mayers  ( Wm.  F.),  Treaties  between  the  Empire  of  China  and  Foreign 

Powers,  Shanghai,  1901. 
Report  of   the  Compagnie  Francaise  des  Chemins  de  Fer  de  I'lndo- 

Chine  et  du  Yunnan,  and  Societe  de  Construction  de  Chemins  de 

Fer  Indo-Chinois.     Paris,  1910. 
Rockhill  (W.  W.),  Treaties  and  Conventions  with  or  concerning  China 

and  Korea  (.Washington,  D.  C,  1904),  pp.  207-424. 

II. — Treatises: 

Beresford    (Lord  Charles),   The  Break-up  of  China    (London,   1898), 

chap,  xxiii. 
Brown  (Arthur  J.),  New  Forces  in  Old  China  (New  York,  1904),  chs. 

xi-xvii. 
Conant  (Charles  A.),  The  United  States  in  the  Orient  (Boston,  1901). 
Cary    (C),   China's  Present   and   Prospective  Railways    (New   York, 

1899). 
Curzon   (Geo.  N.),   M.  P.,  Problems  of  the  Far  East   (Westminster, 

1896),  ch.  x. 
Davies   (H.  R.),    Yunnan,  the  Link   between  India  and  the   Yangtsce 

(Cambridge,   1909). 
Hatch   (Ernest  F.  G.),  Far  Eastern  Impressions  (London,  1905),  chs. 

x-xv. 
Kent  (P.  H.),  Railway  Enterprise  in  China  (London,  1007). 
Krausse  (A.),  China  in  Decay  (London,  1898),  ch.  xii. 
Krausse  (A.),  The  Far  East  (London,  1900). 
Leroy-Beaulieu  (Pierre),  The  Awakening  of  the  East  (London,  1900). 

Translated  from  French  by  Richard  Davey,  part  I,  chs.  ix,  x,  xi ; 

part  UI,  chs.  viii,  ix,  x. 
Michie   (Alexander),    The  Englishman   in   China    (London,   1000 "),   vol. 

II,  chs.  xxv-xxxiv. 


86  RAILWAY  PROBLEMS  IN  CHINA  [^ 

Parsons  (Wm.  Barclay),  An  American  Engineer  in  China  (New  York, 

1900),  Preface  and  chs.  ii  and  ix. 
Reinsch  (Paul  S.),  World  Politics  (New  York,  1900),  parts  ii  and  iii. 
Ular  (Alexandre),  A  Russo-Chinese  Empire  (Westminster,  1904).    An 

English  version  of  "Un  empire  russo-chinois." 

III. — Articles: 

Bowne  (T.  Johnstone),  "Railway  Engineering  in  China,"  in  Cassier's 

Magazine  (New  York,  1901),  vol.  xx. 
Cammaerts   (E.),  "  Le  Reseau  des  Chemins  de  Fer  Chinois,"  in  Rev. 

econ.  internat.  (Bruxelles,  1905),  vol.  vi,  no.  I. 
Fauvel   (A.  A.),  "  Le  Trassinien  et  les  Chemins  de  Fer  Chinois,"  in 

Revue  Politique  et  Parlementaire,  vol.  xxi,  Sept.,  1899. 
Gundry  (R.  S.),  "China:  Spheres  of  Interest  and  the  Open  Door,"  in 

Fortnightly,  July,  1899. 
Parsons    (Wm.   Barclay),   "Railway  Development  in   China,"   in  Mc- 

Clure's  Magazine  (New  York,  1900),  vol.  xv. 
Preyer  (Otto  E.),  "  Das  Eisenbahnwesen  Chinas,"  in  Archiv  fur  Eisen- 

bahnwesen,  Jahrg.  32  (1909). 
Rea  (Geo.  B.),  "Railway  Loan  Agreements  and  Their  Relation  to  the 

Open  Door,"  in  Far  Eastern  Review,  vol.  vi,  no.  6,  Nov.,  1909.    (In 

the  same  number  see  description  of  all  railways  in  China  up  to 

1909.) 
Rigby   (Ed.  Hulme),   and  Leith   (W.  O.),   "Railway   Construction  in 

N.  China,"  in  Institution  of  Civil  Engineers,  Min.  of  Proc,  vol. 

clx,  London,  1905. 
Tepper    (Henry),   "China  and  the  West,"  in  Institutes  of  Bankers' 

Jour.   (London,  1901),  vol.  xxii. 


THIRD  PERIOD 


CHAPTER  VI 
Provincial  and  Private  Enterprises 

The  third  and  present  stage  of  railway  development  may 
be  regarded  as  commencing  during  or  immediately  after 
the  Russo-Japanese  War.  The  victory  of  the  Mikado's 
troops  over  the  Czar's  not  only  arrested  the  increasing 
influence  and  power  of  Russia  in  Manchuria  and  Peking 
but  gave  the  greatest  impetus  ever  found  in  the  history  of 
China  to  hasten  China's  xef orm  movement,  and  also  stimu- 
lated the  patriotic  children  of  China  to  act  more  rapidly  in 
different  fields  and  in  various  forms.  The  progress  made 
in  rail  way— aff  airs  was  one-oi  th^se^-  The  different  classes 
of  the  people,  instead  of  the  enlightened  officials  alone  as  in 
the  case  of  the  previous  periods,  have  appreciated  the  ad- 
vantages and  have  realized  the  importance  of  the  iron  high- 
way. 

Feeling  that  their  country  was  dominated  by  foreigners 
and  fired  with  the  laudable  ambition  to  furnish  from  their 
own  pockets  the  capital  required  for  the  building  of  rail- 
ways in  their  own  provinces,  the  prominent  merchants  and 
gentry  of  the  several  provinces  started  a  "  sovereign  right 
campaign."  They  either  filed  application  with  the  Board 
of  Commerce  for  the  purpose  of  undertaking  railway  build- 
ing in  their  own  provinces  or  petitioned  the  Waiwupu  l 
(Board  of  Foreign  Affairs)  to  regain  some  of  the  conces- 
sions already  granted  to  foreigners,  basing  their  pleas  on 
the  stipulation  with  the  concessionaires  that  "  those  conces- 
sions promised  to  them  can  be  handed  over  to  any  Chinese 

1  The  Waiwupu  was  established  by  the  Imperial   Edict  of  July  24, 
1 901,  which  has  reformed  the  Office  of  Foreign  Affairs. 

317]  89 


go  RAILWAY  PROBLEMS  IN  CHINA  [318 

corporation  provided  they  are  purely  Chinese  undertak- 
ings." After  accomplishing  this  they  started  to  raise  capital 
entirely  from  Chinese  sources  and  to  organize  stock  com- 
panies x  which,  by  the  way,  showed  the  furthest  stage  of 
commercial  development  the  people  of  China  have  reached. 
Out  of  these  conditions  several  characteristics  were  later 
developed  in  railway  matters,  viz. :  ( 1 )  Private  enterprises 
greatly  influenced  by  the  sovereign  right  campaign;  (2)  con- 
flicts of  different  interests;  (3)  nationalization  of  railways; 
(4)  financial  combination  among  foreign  syndicates  and  a 
resultant  monopoly.  We  will  study  these  different  phe- 
nomena in  their  proper  place.  Let  us  first  of  all  trace  how 
the  different  private  enterprises  came  about. 

Mr.  Chang  Yu-nan  of  Fukien,  who  made  his  fortune  in 
Java,  was  the  first  Chinese  merchant  who  started  the  first 
purely  Chinese  railway  enterprise.  In  1903,  he  obtained  a 
grant  from  the  Government  to  build  a  line  from  Swatow  to 
Chaochowfu  in  the  Province  of  Fukien.  The  Chaochow 
and  Swatow  Railway  Co.,  capitalized  at  $3,303,303  Mex., 
was  the  first  distinctly  Chinese  railway  organization  which 
has  succeeded  in  constructing  and  operating  a  road.  Con- 
struction work  was  commenced  in  September,  1904,  and 
carried  out  by  Japanese  engineers.  The  road  was  open  to 
traffic  throughout  its  entire  length  of  about  30  miles  by  No- 
vember,! 1906.  But  the  competition  of  the  slow  but  cheap 
boat  lines  wasTso  keen  and  the  length  of  the  railway  was  so 
short  that  its  earnings  have  been  very  poor.  No  dividends 
have  been  paid  since  1906.  Now  the  manager  of  the  road 
plans  to  raise  more  funds  to  extend  the  line  to  Sheklung  on 
the  Canton-Kowloon  Railway.2 

1  Chinese  merchants  usually  formed  a  "  guild "  to  carry  on  an  en- 
terprise on  any  large  scale. 

1  Anderson,  Railway  Situation  in  China,  U.  S.  Special  Consular  Re- 
port, no.  48,  p.  25.     (Washington,  D.  C,  1911-) 


319]      PROVISIONAL  AND  PRIVATE  ENTERPRISES  gi 

The  activity  of  the  private  entrepreneurs  of  China  was 
next  seen  in  the  Provinces  oi  ECwangtung  and  Hunan,  )vhere 
the  wealthy  merchants  and  gentry  combined  to  redeem  the 
American  interests  when  the  Belgians  gained  control  of  the 
American  China  Development  Co.  The  Mercantile  Ad- 
ministration of  Yuet-Han  (Canton-Hankow  Railway  Co.) 
was  then  organized  in  1905  with  a  capital  of  $40,000,000 
Mex.  on  which  calls  have  been  made  for  carrying  on  the 
work.  By  191 1,  about  one-half  (100  miles)  of  the  Kwang- 
tung  section  of  the  whole  line  had  been  completed.  The 
Hunan  section  has  been  undertaken  by  a__separate  provincial 
company  which  has  raised  about  $5,000,000  Mex.  and  has 
completed  about  35  miles  of  railroad.  Owing,  however,  to 
the  difficulty  of  raising  enough  funds  to  push  the  work  for-  S 
ward  and  the  strong  opposition  of  the  villagers,  progress 
has  been  very  slow.1 

In  1906,  we  find  construction  work  begun  on  four  other 
private  roads,  viz.,  the  Hsinning  .Railway  in  Kwangtung 
province,  the  Kiangsi  (Kiukiang-Nanchang)  Railway  in 
the  Province  of  Kiangsi,  the  Anhui  (Wuhu-Kuangtechow) 
Railway  in  the  Province  of  Anhui  and  the  Chekiang- 
Kiangsu  (Shanghai-Hangchow-Ningpo)  Railway.  In  1907, 
work  on  the  Fukien  (Changchowfu  to  Amoy)  Railway  in 
the  Province  of  Fukien  and  the  Tsitsihar  Light  Railway  in 
North  Manchuria  was  started  by  natives.  In  19 10,  the  rails 
of  the  Tungkuan-Honanfu  (Lotung)  Railway  in  the  Prov- 
ince of  Honan  and  the  Szechuan-Hankow  Railway  were 
laid  from  their  respective  terminals.2 

Besides  the  above  lines  on  which  work  has  been  actually 
done  there  were  many  other  lines  projected,  e.  g.,  the  Har- 
bin-Shuhui-Huilin  line,  in  Manchuria,  a  light  railway  of 
about   150  miles;  the  Yushan   (in  Kiangsi)   to  Changshan 

1  Anderson,  op.  cit..  pp.  21-23. 

1  China  Year  Book  (in  English),  (London,  1914).  PP-  234-242. 


92  RAILWAY  PROBLEMS  IN  CHINA  [o2o 

(in  Chekiang)  line;  and  the  Tungpu  line.  For  the  con- 
struction of  these  lines  local  funds  were  raised  in  191 1. 
There  were  also  other  projects  which  were  of  less  definite 
nature.  All  these  lines,  however,  had  been  surveyed  before 
the  Revolution  of  191 1  broke  out.1 

The  Chekiang-Kiangsu,  the  Szechuan-Hankow,  the  Can- 
ton-Hankow and  the  Lotung  lines  are  considered  trunk  lines 
which  we  will  discuss  later  in  greater  detail.  The  rest  of 
the  roads  which  have  been  completed  or  are  under  construc- 
tion at  present  are  taken  as  branch  lines  and  are  therefore 
of  only  secondary  importance.  It  is,  however,  interesting 
and  instructive  to  study  briefly  the  experiences  of  a  few  of 
the  private  and  provincial  railway  companies  which  were 
more  or  less  successfully  organized  and  have  actually  done 
something  real  and  tangible. 

I.  The  Hsinning  Railway  2 

The  Hsinning  Railway  Co.  was  originally  formed  with  a 
capital  of  $2,660,000  Mex.  Later  the  capital  of  the  com- 
pany was  increased  to  $4,306,120  Mex.,  $1,000,000  of  which 
represents  loans  from  merchants.  The  company  was  or- 
ganized by  Mr.  Chin  Yu-hee,  who  gained  his  knowledge  of 
railway  matters  in  the  United  States  of  America  where  he 
resided  for  many  years.  It  was  due  to  his  influence  that  the 
-Chinese  residents  in  the  United  States  subscribed  most  of 
the  capital.  A  small  part  of  it  was  subscribed  by  the  Chinese 
merchants  in  Hongkong. 

The  line  runs  through  the  Hsinning  district  of  Xwang- 
tung  province.  The  completed  section  of  the  line  running 
from  Kongmoon  to  Samkaphoi  (a  harbor  site  in  lower 
Hsinning)  via  Kongyik  and  Hsinnighsien  is  about  68  miles 

1  Anderson,  Railway  Situation  in  China,  passim. 

3  China  Year  Book,  1914,  p.  239.    And  The  Far  Eastern  Review,  1909, 
Nov.,  pp.  254-257. 


32 1  ]      PRO l  'ISIONA L  A ND  PRIVA  TE  EX TERPRISES  93 

in  length.  The  cost  of  construction  is  estimated  at  $3,510,- 
000  Mex.  The  company  has  already  secured  permission  to 
connect  with  the  Canton-Hankow  line  from  Kongmoon  at 
Fatshan. 

There  are  two  exceedingly  remarkable  features  in  con- 
nection with  this  road,  (a)  It  is  the  first  railway  in  China 
financed,  constructed  and  operated  entirely  by  Chinese.  Not 
a  single  cent  of  foreign  money  is  invested  in  the  enterprise 
and  not  one  foreigner  is  employed,  (b)  The  salary  paid  to 
the  president  of  the  line  is  perhaps  the  lowest  received  by 
the  head  of  any  railway  in  the  world.  Mr.  Chin  Yu-hee, 
the  President,  Chief  Engineer  and  General  Manager,  signs 
a  voucher  for  $80  Mex.  a  month.  The  success  of  the  enter- 
prise is  largely  due  to  his  energetic  activity  and  commend- 
able devotion.  The  completed  section  of  the  line  is  operated 
very  economically.  Work  on  the  extension  has,  however, 
been  somewhat  delayed  by  the  unsettled  conditions  prevail- 
ing in  the  country  and  by  the  local  opposition,  because  of 
superstitions,  to  the  building  of  bridges  over  ponds  oiV' 
creeks. 

II.  The  Kiukiang-N  anchang  Railway  l 
After  having  obtained  the  right  of  way  in  1904,  the  Kiu- 
kiang-Nanchang  Railway  Co.  secured  permission  from  the 
Board  of  Commerce  to  issue  lottery  tickets  in  order  to  raise 
the  necessary  capital  for  construction.  It  was  originally 
contemplated  extending  the  line  from  Nanchang  to  Shao- 
chow  to  Kwangtung,  to  connect  there  with  the  Canton- 
Hankow  Railway.  The  line  was  surveyed  in  1905,  but 
actual  construction  was  not  commenced  until  1908.  The 
company  was  organized  with  a  capital  of  Tls.  2,800,000. 
From  the  beginning  financial  troubles  set  in  and  work  was 
greatly  retarded.     The  company  had  planned  to  contract 

1  China  Year  Book,  1914,  p.  241.    Anderson,  o{>.  cit.,  p.  19. 


y 


94  RAILWAY  PROBLEMS  IN  CHINA  [322 

loans  from  local  banks,  but  the  money  was  not  forthcom- 
ing in  a  way  to  permit  rapid  work. 

It  is  reported  that  only  about  one-half  of  the  whole  line 
of  87  miles  in  length  is  near  completion.  Trains  are  run- 
ning over  a  short  distance  of  the  road.  TJhe  engineering 
staff,  until  very  recently,  was  entirely  Japanese.  No  engi- 
neering obstacle  is  encountered  in  building  the  line,  but  the 
.••  difficulty  of  securing  a  sufficiently  large  capital  from  local 
sources  to  complete  the  line  has  embarrassed  the  railway 
management  greatly. 

In  1 9 12,  the  company  arranged  a  loan  agreement  with  a 
Japanese  syndicate  for  Yen  5,000,000;  but  the  condition 
that  all  contracts  were  to  be  in  the  hands  of  the  syndicate  and 
also  the  mode  of  paying  the  proceeds  of  the  loan  aroused 
serious  opposition  from  these  merchants  and  gentry  who 
have  interests  in  the  enterprise. 


n/ 


III.  The  Fukien  Railway  l 

In  1905,  the  Merchants'  Fukien  Railway  Co.  was  or- 
ganized by  Mr.  Chen  Pao-chen.  In  1906,  the  route  from 
Changchow  to  Amoy,  a  distance  of  33  miles,  was  surveyed; 
and  a  right  of  way  was  secured  to  connect  Fukien  with 
Kwangtung  on  the  south,  and  with  Kiangsi  on  the  west. 
The  company  was  originally  formed  with  a  capital  of  $6,- 
000,000  Mex.  in  $5  shares  on  which  a  call  of  one  dollar  has 
been  made  from  the  Chinese  residents  of  the  Straits.  The 
provincial  taxes  upon  salt  and  grain  were  pledged  as  security 
for  interest  upon  the  shares  2  of  the  company.  Thus  the 
road  was  voluntarily  transferred  to  the  Provincial  Govern- 
ment,   notwithstanding   the  claim   of   the   so-called   share- 

1  Far  Eastern  Review,  vol.  vi,  no.  6,  pp.  262-266;  and  vol.  x,  no.  8, 
p.  321. 

2  The  so-called  "  shares "  as  stated  in  the  reports  of  the  company 
are  in  reality  bonds. 


323]      PROVISIONAL  AND  PRIVATE  ENTERPRISES  95 

holders,  who  were  ignorant  of  corporation  laws,  that  the 
road  was  a  private  enterprise. 

The  officials  and  engineers  of  the  road  are  all  Chinese. 
The  company  has  contracted  with  Japanese  firms  for 
sleepers.  In  1909,  a  year  after  the  construction  work 
was  begun,  all  the  funds  previously  obtained  were  exhausted 
and  a  loan  of  $500,000  was  raised  from  the  Bank  of  Com- 
munication. In  1914  less  than  twenty  miles  of  the  line  was 
open  to  traffic;  also,  the  financial  strength  of  the  merchants 
had  failed. 

IV.  The  Shanghai-Hangchozv-Ningpo  Railway  x 
The  history  of  this  road  teaches  a  lesson  of  what  is 
known  as  "  Might  is  Right."  We  remember  that  when  the 
"  Battle  for  Concessions  "  was  at  its  height  at  Peking,  the 
British  and  Chinese  Corporation  secured  with  official  sup- 
port the  preliminary  agreement  for  the  concession  of  the 
Soochow-Hangchow-Ningpo  road.  As  the  Corporation  was 
fully  occupied  in  financing  the  Shanghai-Nanking  and  the 
Kowloon-Canton  2  roads  the  perfecting  of  this  concession 
was  consequently  delayed.  According  to  the  agreement  the 
concession  could  be  canceled.  In  fact,  Mr.  Sheng  Hsuan- 
huai  in  1903  notified  the  Corporation  to  this  effect,  but  the 
representatives  of  the  Corporation  turned  a  deaf  ear  to  his 
note.  The  Ministry  of  Commerce  at  the  same  time  recom- 
mended the  Throne  to  cancel  the  original  concession.  The 
Manchu  Throne  took  the  advice.  An  Imperial  Edict  of 
September  23,  1905,  transferred  the  right  of  construction 
to  a  provincial  railway  bureau  which  was  organized  to  con- 
struct the  road  with  Chinese  capital  only.  Under  this  au- 
thority two  companies — the  Kiangsu  Railway  Co.  and  the 

1  Far  Eastern  Review,  vol.  vi,  pp.  240-250.    China  Year  Book,  1914, 
pp.  239-240. 

2  Cf.  infra,  pp.  133-135- 


96  RAILWAY  PROBLEMS  IN  CHINA  ^2, 

Chekiang  Railway  Co.,  were  formed  to  construct  and  oper- 
ate the  whole  line.  The  Kiangsu  Railway  Co.  was  organized 
with  a  capital  of  $3,000,000  to  take  up  the  road  between 
Shanghai  and  Fenching.  The  Chekiang  Railway  Co.,  oper- 
ating the  road  from  Fenching  to  Hangchow  and  Ningpo, 
was  organized  with  a  capital  of  $5,000,000  all  paid  up. 

The  British  Co.  then  awoke  from  its  lethargy  and  pro- 
tested very  violently  against  this  infringement  of  its 
rights.  Under  British  diplomatic  pressure  the  Peking  Gov- 
ernment had  to  agree  to  sign  a  loan  agreement x  with  the 
British  company  for  a  5  per  cent  Gold  Loan  of  £1,500,000 
for  the  construction  expenses  of  the  road  on  terms  similar 
to  the  Tientsin-Pukow  Agreement.2  This  loan  was  strongly 
opposed  by  the  provincial  companies  on  the  following 
grounds : 

1.  As  the  British  concessionaires  did  nothing  during  the  ten 
years  after  the  conclusion  of  the  preliminary  agreement  in 
1897,  the  concession  has  now  lapsed. 

2.  In  June,  1903,  H.  E.  Sheng  Hsuan-huai  wrote  officially 
to  Mr.  Brenan  (the  representative  of  the  Corporation)  to  the 
effect  that  if  the  concessionaires  failed  to  commence  work 
within  six  months,  then  the  preliminary  agreement  would  be 
cancelled,  but  no  reply  was  received  from  the  representative 
nor  was  work  begun  at  that  time. 

3.  The  Chinese  Railway  Cos.  of  Kiangsu  and  Chekiang  have 
no  need  to  float  a  loan  from  the  said  Corporation  as  was  done 
for  the  proposed  Tientsin-Chinkiang  trunk  line,  for  they  have 
funds  themselves  to  build  the  Soo-Hang-Ning  Railway  with- 
out assistance. 

4.  The  natives  of  Kiangsu  and  Chekiang  obtained  Imperial 
permission  last  year  to  construct  the  railway  with  purely 
Chinese  mercantile  funds. 

1  Chung  Hwa  Fa  Kwei  Tax  Tsueuen,  Treaties,  vol.  xi,  leaves  24-28. 

2  Cf.  infra,  pp.  136-138. 


325]      PROVISIONAL  AND  PRIVATE  ENTERPRISES  gy 

5.  The  Chinese  Railway  Co.  at  Hangchow  has  now  com- 
pleted the  construction  of  the  short  railway  from  that  city  to 
Kianghu  and  has  opened  it  to  traffic  as  part  of  the  section  in 
Chekiang,  while  the  company  at  Soochow  is  laying  rails  for 
the  Shanghai-Sungkiang  portion  and  preparations  are  being 
made  to  push  them  forward  as  soon  as  possible. 

6.  Although  the  proposed  loan  of  £1,500,000  is  to  be  guar- 
anteed by  the  Provincial  Governments  of  Kiangsu  and  Che- 
kiang, yet,  as  both  capital  and  interest  will  be  repaid  out  of 
the  profits  of  the  railway  in  future,  it  is  the  same  as  placing  it 
on  mortgage. 

7.  As  the  construction  of  railways  in  China  with  Chinese 
money  is  an  important  matter,  the  Peking  Government  should 
exert  itself  to  retain  full  control,  otherwise  the  consequences 
will  be  greatly  detrimental  to  both  the  country  and  the  people. 

Realizing  the  seriousness  of  the  matter,  the  Central  Gov- 
ernment asked  that  the  two  provinces  concerned  send  a 
deputation  of  delegates  to  Peking  to  state  directly  the  case 
against  the  foreign  loan.  It  might  be  remarked  here  that 
the  delegation  thus  summoned  was  regarded  as  the  begin- 
ning of  provincial  representation  in  the  capital.  The  British 
Government,  however,  brought  such  a  great  pressure  upon 
Peking  that  the  Central  Government,  despite  the  decided 
opposition  of  the  provincial  companies  supported  by  a 
unanimous  public  sentiment,  had  to  complete  the  manifestly 
unfair  loan  agreement  with  the  British  company  in  March, 
1908.  A  vigorous  campaign  in  opposition  to  this  action 
was  carried  on  throughout  the  two  provinces,  and  new  ef- 
forts were  made  to  raise  money  to  operate  the  completed 
section  of  the  road  and  to  extend  the  line  to  Ningpo.  In 
June,  the  Chekiang  Railway  Co.  authorized  an  increase  of 
capital  of  $15,000,000  to  be  paid  in  five  instalments.  In 
response  to  the  earnest  appeal  of  the  company  more  than 
53,000  persons  subscribed  for  the  stock.  Nearly  40,000  of 
the  shareholders  were  laborers,  farmers  and  small  trades- 


98  RAILWAY  PROBLEMS  IN  CHINA  [326 

men.  The  first  call  on  the  new  issue  of  $3,000,000  has  been 
paid  in. 

The  Government  was  thus  placed  in  a  difficult  position. 
A  deadlock  followed.  After  considerable  delay  the  Gov- 
ernment effected  a  compromise,  by  which  the  construction 
of  the  line  was  left  in  the  hands  of  the  provincial  companies, 
/while  the  Board  of  Communications  allotted  a  certain  sum 
of  the  British  loan  at  5^  per  cent  interest,  charging  7  per 
cent  of  the  amount  as  premium.1 

Having  ample  funds  to  complete  the  whole  road,  the  com- 
panies loaned  the  money  to  the  local  banks  at  a  higher  rate 
of  interest  than  that  exacted  from  them  by  the  Government. 
In  reality  the  money  obtained  from  the  British  company 
was  never  spent  on  the  road.  Although  the  loan  provided 
for  the  employment  of  a  British  engineer  and  the  purchas- 
ing of  materials  through  the  British  company,  the  provin- 
cial companies  were  very  reluctant  to  permit  the  British 
engineer  to  inspect  the  line  and  had  flatly  refused  to  accept 
the  purchasing  agents'  services.  Consequently  they  had  to 
pay  the  sum  of  $250,000  Mex.  in  lieu  of  the  5  per  cent  com- 
mission for  the  purchasing  agents'  services  stipulated  in  the 
loan  agreement. 

The  Government  from  time  to  time  vainly  endeavored  to 
persuade  the  British  company  that  it  should  permit  the  Gov- 
ernment to  utilize  the  funds  in  other  directions.  The  Gov- 
ernment went  on  paying  5  per  cent  interest  for  five  years 
until  the  line  was  nationalized  in  1913.2  The  British  never 
abandoned  their  hope  of  securing  ultimate  control  of  the 
line.  This  is  the  case  of  a  forced  loan !  This  is  the  lesson 
of  "  Might  is  Right  "  ! 

The  section  of  the  line  from  Shanghai  to  Hangchow,  116 

1  Chung  Hwa  Fa  Kwei  Tai  Tsueuen,  Treaties,  vol.  vi,  leaves  28-30. 

2  Cf.  infra,  p.  128. 


327]      PROVISIONAL  AND  PRIVATE  ENTERPRISES  99 

miles  long  with  36  miles  of  siding,  is  completed — the  long- 
est private  road  ever  built  by  Chinese  engineers  with  Chinese 
capital.  A  part  of  the  section  between  Hangchow  and 
Ningpo,  a  distance  of  about  112  miles,  has  been  completed, 
but  the  road  has  not  been  competently  managed.  No  divi- 
dends have  ever  been  paid  to  the  Kiangsu  shareholders.  The 
Chekiang  Railway  Co.,  however,  has  given  its  shareholders 
a  guarantee  of  7  per  cent  interest  on  the  paid-up  value  of 
their  shares,1  this  constituting  a  first  lien  on  the  revenues  of 
the  property. 

V.  The  Szechuan-Hankow  Raihvay  2 

The  history  of  the  Szechuan-Hankow  Railway  is  some- 
what similar  to  that  of  the  Shanghai-Hangchow-Ningpo 
Railway.  The  results  of  a  foreign  loan  for  the  former  were, 
however,  much  more  serious  than  for  the  latter  road.  In 
1904,  a  company  had  been  organized  by  Hsi  Liang,  then 
Viceroy  of  Szechuan,  in  order  to  prevent  a  foreign  loan 
being  raised  for  the  construction  of  the  line.  Shortly  after- 
wards the  services  of  two  Chinese  engineers  (American  stu- 
dents), Messrs.  Hu  and  Luk,  were  secured  to  survey  the 
line,  but  nothing  developed  from  the  survey.  The  policy  of 
the  company  at  that  time  was  to  defer  work  until  sufficient 
funds  were  in  hand  to  complete  the  section  from  Ichang  to 
Kweichow,  a  distance  of  about  100  miles. 

In  1906,  the  people  of  Szechuan  and  Hupeh  took  into  ser- 
ious consideration  the  matter  of  constructing  this  road,  and 
some  $600,000  Mex.  was  subscribed  to  promote  the  con- 
struction of  this  line.     A  college  was  also  established  for 

1  The  word  "shares"  as  employed  in  the  reports  of  this  company  is 
misleading  as  the  so-called  shares  are  in  reality  debentures  with  a 
priority  over  any  further  loans. 

2  China  Year  Book,  1914,  pp.  233-4;  Anderson,  Raihvay  Situation  in 
China,  pp.  16-18. 


IOO  RAILWAY  PROBLEMS  IN  CHINA  [328 

training  railway  engineers.  Although  agitations  from  those 
who  wished  to  see  the  railway  built  with  native  capital  broke 
out  from  time  to  time,  nothing  was  actually  done  on  the 
road  until  1909  when  the  Four  Nations'  Loan  question  came 
S  up,  whereupon  a  considerable  amount  of  capital  was  raised 
in  Szechuan  and  spent  upon  it. 

At  a  meeting  of  shareholders  held  in  November,  1909,  the 
accounts  submitted  showed  that  a  sum  of  Tls.  15,405,902 
had  been  collected  in  shares,  of  which  only  28  per  cent  had 
been  subscribed  voluntarily,  the  greater  proportion  of  the 
remainder  having  been  collected  as  "  tsu  ku,"  T.  e.,  shares" 
given  in  exchange  for  forced  levy,  payable  by  every  land- 
holder in  the  form  of  an  addition  to  his  land-tax.  Offices 
were  established  in  the  different  districts  to  collect  the  land- 
tax  shares,  and  as  there  are  over  100  districts  in  Szechuan, 
that  number  of  offices  were  established.  Each  office  was 
allowed  Tls.  200  on  every  Tls.  10,000  worth  of  shares  col- 
lected— the  allowance  covering  the  cost  of  remitting  the 
share  money  and  other  sundry  expenses. 

During  1910,  work  was  pushed  on  with  great  energy. 
Construction  was  in  progress  for  a  distance  of  80  miles 
from  Ichang  toward  Kweichow.  In  May,  191 1,  when  the 
Four  Nations'  Loan  was  concluded  by  the  Government  the 
dissolution  of  the  company  was  threatened,  a  national  revo- 
lution precipitated,  and  work  interrupted.  After  the  revo- 
lution the  line  was  taken  over  by  the  Government.1 

This  record  of  the  above-mentioned  enterprises  is  suffi- 
cient to  show  that  the  people  are  more  and  more  interested 
in  railway  matters  and  that  the  pressure  from  the  people  in 
favor  of  railway  construction,  taking  the  country  as  a 
whole,  is  growing.  At  the  present,  as  the  Government  up- 
holds its  nationalization  policy,  a  notable  feature  of  the 

1  Cf.  infra,  p.  129. 


329]      PROVISIONAL  AND  PRIVATE  ENTERPRISES         IOi 

situation  is  the  comparatively  rapid  development  in  different 
parts  of  the  country  of  the  desire  for  railways  tributary  to 
the  lines  already  constructed.  This  shows  also  an  apprecia- 
tion of  the  need,  in  the  development  of  local  industries,  of 
close  and  convenient  connections  with  trunk  lines.  Many 
cities  are  coming  to  appreciate  the  fact  that  they  must  have 
railway  connections  at  once  or  their  present  share  of  the  / 
trade  of  the  country  will  be  lost.  In  fact,  a  number  of 
small  lines  have  been  either  projected  or  are  in  the  course 
of  construction :  many  new  enterprises  have  been  inaugu- 
rated, and  many  ambitious  plans  are  laid  out. 

But  in  almost  every  case  work  has  been  either  suspended 
or  delayed  due  to  the  lack  of  fundsjjn  the  part  of  the  pro- 
moters and,  also,  to  the  difficulty  of  raising  the  necessary 
money.  The  fact  that  some  of  the  railways  already  in  oper- 
ation have  been  poorly  managed  or  have  been  operated  under 
conditions  that  make  it  impracticable  to  secure  fair  return- 
on  the  capital  invested  in  them  is  a  constant  discouragement. 
These  and  other  causes  have  led  the  Government  to  take 
over  all  trunk  lines  which  have  been  undertaken  by  private 
entrepreneurs,  especially  those  which  have  been  unduly  de- 
layed in  execution. 

Nevertheless,  the  demands  of  trade  in  the  interior  are 
becoming  more  pronounced  in  favor  of  more  rapid,  safer, 
and  better  communication.    Public  sentiment  is  steadily  pre- 
paring  for  tremendous  railway  development.     It  is  undoubt- 
edly true  that  the  technics  of  railroad  financing,  construction  n     > 
and  management  must  be  learned  by  the  Chinese  railroad 
men.     As  China  has  the  experience  of  other  countries  for 
her  guidance,  in  time  this  problem  will  be  solved  one  way  or 
another.     The  question  of  state  regulation,  especially  finan^ 
cial   regulation,  of  private  enterprises,   has  been  taken  \xqSS 
seriously  by  the  Government  but  has  not  been  solved  satis- 
factorily.   The  most  important  question  facing  the  country 


102  RAILWAY  PROBLEMS  IN  CHINA  [330 

is  that  of  healthy  financing  and  rapid  construction.  To  give 
encouragemenTTcf The  private  entCTpnselT^ar-sighted  and 
systematic  management  on  the  part  of  the  railway  managers 
and  intelligent  legislation  on  the  part  of  the  Government 
are  factors  absolutely  indispensable.  As  provision  is  made 
by  the  Government  whereby  private  companies  may  under- 
take the  construction  of  branch  lines,  in  the  future  private 
capital  will  be  used  almost  wholly  for  developing  the  local 
interests. 


CHAPTER  VII 
The  Railways  Built  by  the  Government 

We  have  studied  some  of  the  loan-built  railroads  in  Chap- 
ter V.  We  will  consider  the  others  later.  All  these  roads, 
which  are  now  or  have  been  supervised  jointly  by  Chinese 
and  foreigners  during  construction  or  in  operation,  are  con- 
sidered Chinese  Government  railways.1  If  the  status  quo  of 
China  can  be  maintained  and  in  course  of  time  the  loans  re- 
paid these  roads  will  be,  sooner  or  later,  entirely  at  the  dis- 
posal of  the  Government.  The  Peking-Hankow  road  has 
been  repurchased  by  China.  Others  will  be  redeemed  later. 
In  addition  to  these  there  are  two  Government  railroads 
which  were  built  under  purely  Chinese  supervision  with 
Chinese  capital.  Now  we  are  in  a  position  to  consider  these 
two  roads. 

I.   The  Pinghsiang-Chuchow  Railzuay  2 

This  road  was  surveyed  by  American  engineers  under  Mr. 
Wm.  Barclay  Parsons  in  1898,  when  the  reconnaisance  was 
made  for  the  Canton-Hankow  railway.  Construction  work 
commenced  in  1899.  It  was  built  by  Chinese  and  American 
engineers  with  Chinese  capital  and  is  70  miles  long  con- 
necting the  An-Yuen  coal  mines  under  German  operation  at 
Pinghsiang  with  Chuchow,  a  small  town  on  the  Hsiang- 

1  See  China  Year  Book,  1914,  pp.  219-234. 

1  This  road  belongs  to  the  2nd  Period.  It  is  placed  here  simply  for 
the  purpose  of  grouping  under  this  heading.  Reference:  Far  Eastern 
Review,  Nov.,  1909,  pp.  318-319. 

331]  103 


IG4  RAILWAY  PROBLEMS  IN  CHINA  [332 

iang  River  through  which  coal  is  shipped  to  the  Hanyang 
teel  and  Iron  Works. 

A  college  of  engineering,  mining  and  language  was  estab- 
lished, in  which  Chinese  students  are  trained  for  the  many 
branches  of  work  which  require  a  more  skilled  labor.  With 
the  exception  of  the  heads  of  the  important  departments  the 
railroad  engineers,  conductors,  etc.,  are  all  Chinese. 

The  cost  of  constructing  the  entire  line  was  approxi- 
mately Tls.  3,600,000  (roughly  £7,000  per  mile).  It  is  in- 
teresting to  compare  the  cost  of  this  road  to  that  of  the 
Peking-Syndicate  road  which  was  constructed  under  purely 
foreign  supervision  with  foreign  funds.  Both  roads  were 
built  with  the  same  objective — the  transportation  of  coal 
from  the  mines  to  a  navigable  river.  The  Peking-Syndicate 
road  has  cost  the  Government  £6,830  per  mile  for  its  trans- 
fer, or,  allowing  for  certain  contingencies,  the  same  as  the 
Pinghsiang  line. 

II.  The  Peking-Kalgan  Railway  x 

The  construction  of  this  line  was  commenced  from  Peking 
in  October,  1905.  Nine  months  later,  the  Nankow  Pass 
was  reached,  a  distance  of  32  miles,  and  by  the  end  of  1909 
the  whole  line  was  completed.  Its  total  length  is  about  130 
miles,  extending  to  Tatungfu  in  the  Province  of  Shansi. 
There  are  many  weighty  facts  of  construction,  including 
tunnels,  at  the  Nankow  Pass,  where  a  gradient  of  1  in  30 
for  five  miles  has  been  introduced.  Mr.  Jeme  Tien-yow,  a 
Yale  graduate,  was  appointed  as  the  Chief  Engineer  to  un- 
dertake the  construction  work.  When  the  construction  of 
the  line  was  first  proposed  many  people  believed  that  the 
Nankow  Pass  would  present  insuperable  difficulties  from 
the  engineer's  standpoint.  When  Mr.  Jeme  suceeded  in  com- 

iFor  Eastern  Review,  Nov.,  1009,  pp.  320-328. 


333]         RAILWAYS  BUILT  BY  THE  GOVERNMENT  10- 

pleting  this  important  work  he  was  hailed  throughout  the 
world  as  the  "  father  "  of  Chinese  railway  engineers,  and 
honors  were  heaped  on  him  by  his  fellow-countrymen  and 
by  his  Government. 

The  line  was  built  entirely  under  Chinese  supervision  and 
from  the  surplus  profits  of  the  Peking-Mukden  Railway. 
In  the  construction  of  this  line  there  are  several  features 
wrhich  render  it  distinct  from  other  railroads  in  China : 

i.  It  is  the  first  Government  railroad  built  entirely  by 
Chinese — not  a  single  foreigner  has  been  employed.  This 
is  a  national  pride.  The  successful  manner  in  which  the 
construction  work  has  been  carried  out  is  a  striking  object- 
lesson  of  what  can  be  accomplished  by  the  people  of  China 
who  have  received  a  technical  training.  It  acts  also  as  an 
incentive  to  other  Chinese  enterprises. 

2.  It  was  the  most  serious  engineering  proposition  ever 
undertaken  in  China.  In  the  Nankow  Pass,  besides  the 
steep  gradients  and  a  number  of  sharp  curves,  heavy  cuts 
and  fills  were  required  and  four  tunnels,  the  total  length  of 
which  is  5,370  feet,  had  to  be  pierced.  Furthermore,  the 
engineering  difficulties  in  the  Kimingyih-Kalgan  section  of 
the  line  were  almost  as  serious  as  those  of  the  Nankow  Pass. 

3.  Considering  these  engineering  difficulties,  the  substan- 
tial character  of  the  road  and  the  low  cost  of  construction 
(under  £10,000  per  mile),  it  may  be  said  that  this  road  has 
established  a  record  in  mountain  railway  building.  This  at 
the  same  time  shows  that  there  was  strict  honesty  in  super- 
vising the  work.  "  Economy  on  the  Peking-Kalgan  Rail- 
way has  been  almost  reduced  to  a  science,"  says  the  World's 
Chinese  Students'  Journal  of  Shanghai  (1909). 

The  road  is  of  great  political  importance.  It  facilitates 
communication  between  Mongolia  and  China  proper. 
Russia  has   endeavored   to   undermine   the  loyalty  of  the 


^ 


io6  RAILWAY  PROBLEMS  IN  CHINA  [334 

tribal  chieftains  in  Mongolia.  When  the  road  is  ultimately 
extended  to  Urga  (the  capital  of  Outer  Mongolia)  and  to 
Kiakta  (the  frontier  town),  China  will  be  able  to  strengthen 
her  control  over  that  vast  region. 

The  road  has  also  great  commercial  value,  for  it  taps  the 
overland  trade  of  North  China  and  Mongolia.  With  the 
completion  of  the  road,  Kalgan,  the  great  soda-manufactur- 
ing center  and  the  seat  of  extensive  transit  trade  between 
North  China  and  Mongolia,  will  present  a  different  pros- 
pect and  undoubtedly  become  very  prosperous.  As  to  the 
line  itself  it  supports  its  upkeep  very  satisfactorily.  In  191 1, 
the  net  revenue  of  the  line  amounted  to  over  $3,500  Mex. 
per  mile,  and  in  19 12  to  $9,000  per  mile — a  good  result. 
The  surplus  is  being  used  to  extend  the  line. 


CHAPTER  VIII 
Nationalization  of  Railways 

The  policy  of  nationalizing  the  railways  which  form  the 
different  sections  of  the  future  trunk  systems  became  more 
definite  and  prominent  in  1911,  when  Mr.  Sheng  Hsuan- 
huai  headed  the  Ministry  of  Communications  and  Posts.1 
TRe  memorials  01  the  Tsung-h  ¥amen  and  the  Board  of 
Mines  and  Railways,  and  of  such  prominent  men  as  Li 
Hung-chang,  Chang  Chi-tung  and  others,  presented  to  the 
Manchu  Throne,  and  the  Imperial  edicts  given  out  corres- 
pondingly from  time  to  time,  seemed  to  indicate  the  exist- 
ence of  such  a  policy;  nevertheless,  it  was  not  considered 
seriously  in  those  days.  Mr.  Tsen  Chun-hsuan,  who  held 
the  post  of  the  President  of  the  Board  of  Communications 
for  a  short  time  in  1907,  had  also  petitioned  the  Throne 
suggesting  the  advisability  of  having  China's  railways  under 
proper  unified  control  with  a  proper  system,2  but  again  his 
views  were  not  taken  into  serious  consideration.  Mr.  Tsen 
did  not  suggest  the  taking  over  of  the  private  roads. 

Mr.  Sheng's  policy  was  to  have  all  trunk  lines  built,  oper- 
ated and  controlled  by  the  Government  and  to  have  those 
I  under  private  construction  resumed  by  the  State.3    In  order 

1  By  an  Imperial  Edict  of  Nov.  6,  1906,  which  was  issued  to  reform 
the  Metropolitan  official  system,  the  Board  of  Communications  and  the 
Board  of  Navy  were  created  to  control  the  services  and  systems  of 
telegraph,  steam  navigation,  railway  and  post. 

1  English  translation  of  the  memorial,  in  Journal  of  the  American 
Asiatic  Association,  Feb.,  1910,  p.  14. 

3  Cf.  infra,  pp.  n 6- 117. 

3351  I07 


io8  RAILWAY  PROBLEMS  IN  CHINA  [336 

to  explain  how  this  important  policy  came  about  and  to  note 
its  effects  upon  the  national  life  of  China,  it  is  desirable  to 
record  the  essential  facts  which  occurred  after  1906  in  re- 
gard to  the  railway. 

I.  The  Conflicts  of  Interest 

After  1906,  as  we  have  seen,  a  number  of  provincial 
companies  came  into  existence,  mostly  for  patriotic  rea- 
sons. Some  of  them  secured  concessions  directly  and  some 
of  them  indirectly  through  the  provincial  Administrations 
from  the  Central  Government  which  at  that  time  had  no 
definite  idea  whatsoever  of  state  ownership  or  of  central 
control  of  trunk  roads.  It  granted  concessions  to  the  pro- 
vincial companies  simply  with  the  expectation  of  construct- 
ing the  railways  by  its  own  people,  thus  preventing  the 
trouble  of  raising  foreign  loans  and  eliminating  foreign  con- 
trol. Hence,  even  some  of  the  trunk  lines  were  granted  to 
the  provincial  companies  for  financing  and  construction. 
The  Shanghai-Hangchow-Ningpo,  the  Canton-Hankow,  the 
Szechuan-Hankow,  the  Tungpu  and  the  Lotung  lines  were 
the  most  notable  instances.  But  later  on  when  it  was  dis- 
covered that  the  provincial  companies  had  not  carried  out 
the  work  satisfactorily  and  the  construction  of  the  lines  was 
either  too  slow  or  totally  suspended,  the  Government  began 
to  change  its  attitude  towards  them  and  planned  to  cancel 
*    the  provincial  concessions. 

Meanwhile,  the  country__was-4n-  a  precarious -situation. 
China's  neighbors  made  trouble  with  her.  Japan  on  -the- 
Aralu,  Russia  on  the  North,  France  and  Great  Britain  in 
Yunnan  and  Kwangsi  had  all  raised  boundary  ques- 
tions.  Internal  troubles  arose  everywhere..  Secret  societies 

in  the  South  were  particularly  active  aiming  to  overthrow 
the  Manchu  dynasty.  From  every  point  of  view  further 
humiliation  of  the  country  seemed  inevitable  and  days  of 


237]  NATIONALIZATION  OF  RAILWAYS  IOg 

trouble  for  the  Empire  were  not  far  off.  For  the  sake  of 
preserving  the  prestige  of  the  dynasty  and  the  safety  of  the 
country,  the  Government  realized  that  at  the  critical  moment 
a  show  of  force  must  be  made. 

The  new  army  of  thirty-six  divisions  had  already  been 
successfully  centralized  under  the  command  of  the  Minister  /C 
of  War  instead  of  being  placed  under  the  command  of  the 
several  governors  and  viceroys  separately  as  it  was  before. 
But  jjie  lack  of  transportation  with  the  South  and  the  West 
would  render  the  mobilization  of  this  army  impossible. 
Such  a  condition  demanded  the  construction  of  the  lines 
linking  the  four  quarters  of  the  country  without  delay.  As 
the  provincial  companies  could  not  accomplish  what  the 
Government  expected  them  to  do,  naturally  the  Government 
stepped  in  to  take  the  matter  up  itself  and  adopted  the  same 
policy  wrEHTegafdTo  the  railway  as  to  the  new  army. 

BuTthe  Treasury  wal  empty.  It  was  impossible  for  the 
Government  to  accomplish  its.  object  without  raising  loans 
abroad.  Therefore,  on  June  6[  1909,  Chang  Chih-tung,  then 
Grand  Councillor,  signed  a  preliminary  agreement  with  the 
representatives  of  some  British,  German  and  French  banks 
for  a  loan  of  £5,500,000  for  the  construction  of  the  Hupeh- 
Hunan  section  of  the  Canton-Hankow  line,  the  Hankow- 
Szechuan  road  and  for  other  expenditures.  These  two 
roads  are  of  national  importance.  The  former  when  com- 
pleted will  connect  Peking  with  Canton,  while  the  latter  will 
connect  Chengtu  (the  capital  of  Szechuan)  with  Hankow 
(the  Chicago  of  China). 

Since  an  agreement  had  been  made  on  October  1,  1903, 
between  Prince  Ching,  then  President  of  the  Foreign  Board, 
and  Sir  Ernest  Satow,  then  British  Minister  at  Peking,  stip- 
ulating that  American  capital  might  be  admit  toil  to  the 
Szechuan  road,  a  group  of  American  financiers  accordingly 
wanted  to  co-operate  in  the  loan.     China  was  glad  to  ha\e 


HO  RAILWAY  PROBLEMS  IN  CHINA  [338 

American  participation  in  the  loan,  because  she  has  more 
confidence  in  the  United  States  than  in  any  other  country. 
But  the  three  banking  groups,  who  had  already  secured  the 
concession,  refused  to  admit  a  new  partner.  The  State  De- 
partment of  the  United  States  then  came  out  and  exerted  its 
influence  for  the  benefit  of  a  particular  syndicate  1  which  it 
designated  to  take  up  the  loan.  The  basis  for  intervention 
on  the  part  of  the  American  Government  was  the  promise 
made  by  Prince  Ching  in  his  Red  Note  of  July  18,  1904,  to 
the  American  Minister,  Mr.  Conger,  replying  to  the  applica- 
tion of  the  China  Investment  and  Construction  Co.  for  a 
loan  conce'ssion  for  the  Hankow-Szechuan  road.  After 
much  tedious  diplomatic  negotiation 2  the  United  States 
succeeded  in  her  demands  for  participation  in  the  loan.  On 
August  17,  1909,  another  contract  was  drafted  by  which 
the  loan  was  raised  to  £6,000,000,  divided  equally  among 
the  four  groups ;  hence  it  is  called  the  "Four  Nations'  Loan." 
But  the  matter  was  not  settled.  Russia  and  Japan,  who 
have  not  sufficient  funds  to  exploit  their  own  resources  and 
no  money  to  lend,  also  desired  to  participate  in  the  loan,  and 
urged  a  further  increase  of  the  amount  of  the  loan.  Further 
discord  arose.  The  loan  was  thereby  temporarily  suspended. 
International  controversy  then  followed.  Severe  accusa- 
tions were  exchanged  between  the  Powers.  We  will  study 
this  phase  of  the  controversy  in  connection  with  the  loan 
later.    Its  brief  outline  is  mentioned  here  simply  for  the  pur- 

1  Secretary  Knox  turned  the  financial  negotiations  over  to  the  Wall 
Street  bankers,  headed  by  J.  P.  Morgan  &  Co.,  and  advised  them  to 
put  in  a  claim  for  participation,  at  the  same  time  ignoring  the  claim 
of  the  China  Investment  &  Construction  Co.,  which  had  secured  the 
original  promise  from  the  Chinese  Government.  Members  of  the 
latter  company  severely  criticized  Secretary  Knox  for  favoring  the 
former.    See  Wall  St.  Journal,  Feb.  15,  1910. 

*  Cf.  infra,  Hukuang  Railways. 


339]  NATIONALIZATION  OF  RAILWAYS  UI 

pose  of  showing  its  effects  upon  the  people  of  China  and  its 
relation  to  the  nationalization  program. 

The  threatening  actions  of  Russia  and  Japan,  the  quar- 
rels and  turmoil  among  the  Powers  themselves,  and  above 
all  the  shaking  of  "  mailed  fists  "  at  China  by  the  aggres- 
sive Powers  produced  a  bad  impression  upon  the  chil- 
dren of  China  who  suspected  that  there  were  pernicious_j 
schemes  planned  by  the  aggressive  Powers.  Meetings  were 
held  everywhere.  Many  Railroad  Associations  were  formed 
to  recover  the  sovereign  rights.  Patriotic  subscriptions  were 
made  for  the  building  of  the  two  roads.  Telegrams  and  pe- 
titions of  protest  were  sent  from  all  classes  of  the  people  to 
the  central  authorities.  The  students  and  gentry  of  Hupeh 
and  Hunan  warned  Peking  that  they  would  resist  the  con- 
struction of  any  railroads  in  their  provinces  unless  the 
terms  of  the  loan  contract  were  first  submitted  for  the  ap- 
proval of  the  provinces  concerned.  As  in  the  case  of  the 
Shanghai-Hangchow-Ningpo  road,  delegates  were  sent  by 
the  two  provinces  to  the  Central  Government  to  state  their 
cases  against  he  loan.  According  to  the  telegrams  sent  to 
Chang  Chih-tung  and  the  Board  of  Communications  and 
Posts  they  protested  against  the  loan  on  the  following 
grounds : 1 

i.  Foreign  loans  had  always  proved  detrimental  to 
Chinese  political  interests. 

2.  Since  over  eight-tenths  of  the  Chinese  railroads  were 
controlled  by  foreign  Powers,  further  alienation  would 
prove  harmful. 

3.  By  the  Imperial  Edict  of  1899, 2  prepared  by  the  Bureau 
of  Mines  and  Railways,  Chinese  were  to  have  prior  right  in 
the  construction  of  their  own  railroads. 

1  Journal  of  the  American  Asiatic  Association,  Oct.,  1911,  vol.  xi,  no. 
9,  P-  277. 

2  Cf.  supra,  pp.  37-39- 


II2  RAILWAY  PROBLEMS  IN  CHINA  [340 

4.  The  Provincial  Railway  Association  guaranteed  to 
raise  the  necessary  amount  of  money,  if  privileges  and  al- 
lowance of  time  similar  to  those  granted  to  the  foreign 
Powers  were  accorded  to  it. 

The  provincial  attitude  was  so  determined  and  so  firm 
that  the  ratification  of  the  loan  was  further  delayed.  On 
the  other  hand,  the  loan  Powers,  except  the  United  States, 
demanded  its  early  ratification  by  addressing  an  incidental 
note  to  the  Waiwupu.  The  Peking  authorities  were  thus 
placed  in  a  very  delicate  and  difficult  position.  Another 
deadlock  similar  to  that  of  the  case  of  the  Shanghai-Hang- 
chow-Ningpo  road  was  followed  for  more  than  one  and  a 
half  years  by  patriotic  agitation  on  the  one  hand  in  the  prov- 
inces concerned  and  by  diplomatic  controversy  on  the  other 
in  Peking. 

Meanwhile,  heroic  measures  were  taken  by  the  two  prov- 
inces to  raise  the  necessary  annual  allotment  on  the  shares 
in  order  to  construct  their  portion  of  the  southern  trunk 
line.  But  the  materialization  of  the  funds  was  slow  and  a 
slight  progress  in  the  construction  work  was  made  only 
with  waste  and  extravagance.  Agitations,  however,  still 
continued  and  spread  far  and  wide  with  great  rapidity. 

The  people  of  China  now  as  a  whole  feared  that  the  na- 
tions which  advanced  the  money  would  obtain  internal  con- 
trol over  the  affairs  of  the  country  and  that  the  application 
of  the  Hukuang  Loan  (i.  e.,  Four  Nations'  Loan)  would  be 
but  the  fastening  of  the  last  nail  in  the  coffin  for  China. 
They  denounced  the  action  of  the  Government  as  a  grave 
blunder.  The  suspicious  procedure  in  the  loan  negotiations 
and  the  pretensions  of  Russia  and  Japan  added  "  oil  to  the 
flames  ".  The  people  then  demanded  a  more  intimate  ac- 
y  quaintance  with  the  management  of  the  affairs  of  the  coun- 
try.    The  Manchu  Throne  was  compelled  to  grant  on  Octo- 


34 1  ]  NA TIONALIZA TION  OF  RAILWA  YS  u^ 

ber  14/1909,  the  establishment  of  the  National  and  Provin- 
cial Assemblies.  The  provinces'  persistent  opposition  to  the 
humiliating  foreign  loans  had  given  impetus  to  the  constitu- 
tional  movement. 

Nevertheless,  each  province  was  desirous  of  building  its 
own  railroads  and  of  making  out  of  them  whatever  profits 
might  accrue.  Grand  Councillor  Chang  Chih-tung  had 
formulated  a  scheme,  generally  acceptable  to  the  provin- 
cial delegates  at  Peking,  whereby  the  profits  and  control  of 
the  Government  railways  would  be  divided  upon  a  prear- 
ranged scale  between  Peking  and  the  provinces  concerned. 
Had  his  death  in  October,  1909,  been  deferred,  the  loan 
question  would  have  been  solved  without  serious  conflicts. 

It  is  desirable  to  point  out  here  that  it  is  a  false  belief 
that  the  people  of  China  are  opposed  to  all  foreign  loans. 
They  opposed  some  particular  loans  jpnly^  which  were  nego- 
tiated under  suspicious  circumstances  and  humiliating  con- 
ditions. As  a  matter  of  fact,  the  provincial  companies,  who 
have  endeavored  to  secure  foreign  loans  on  their  account 
without  vexatious  financial  supervision,  hawked  their 
securities  in  the  money  markets  in  Shanghai  and  elsewhere 
in  China.  Simply  because  of  the  formal  declaration  of  the 
Imperial  Edict,  attached  to  the  railway  regulations  *  pre- 
pared by  the  Board  of  Mines  and  Railways,  that  provincial 
loans  or  loans  raised  by  any  Chinese  merchants  which  have 
not  been  sanctioned  by  the  Central  Government  would  not 
be  recognized  as  Imperial  liabilities,  and  for  the  lack  of  suf- 
ficient guarantees  and  proper  information  about  their  finan- 
cial condition,  these  securities  were  rejected  by  the  foreign 
banks  and  commercial  houses. 

Nevertheless,  the  provincials  continued  their  campaign  of 

'"  Revised  Regulations  for  Railway  Construction  in  China,"  U.  S. 
Monthly  Consular  Reports,  Apr.,  1904,  vol.  lxxv,  no.  283. 


HA  RAILWAY  PROBLEMS  IN  CHINA  [342 

agitation  and  forced  the  Peking  authorities  to  recognize 
their  rights  to  build  the  roads  as  provincial  undertakings. 
The  Peking  Railway  Administration  was  at  the  same  time 
accused  of  corruption  and  graft.  On  the  other  hand,  the 
Central  Government,  anxious  for  the  application  of  the  Hu- 
kuang  Loan  and  the  centralization  of  the  railways,  declared 
that  the  provincial  railway  administrations  could  practically 
accomplish  nothing  but  flagrant  dishonesty  and  waste  of 
money  and  time. 

While  the  provinces  insisted  upon  the  recognition  of  their 
sovereign  rights,  the  Central  Government  intended  to  estab- 
lish its  authority  more  strongly  all  over  the  country.  It 
was  too  weak,  however,  to  impose  its  Imperial  will  on  the 
'/provinces  against  their  protests.  None  of  the  responsible 
chiefs  of  the  Boards  of  Finance  and  Foreign  Affairs,  not 
even  the  Prince  Regent  and  the  Grand  Councillors,  endeav- 
ored to  stand  out  and  meet  with  courage  the  revolt  in  Hunan 
and  Hupeh,  threatened  if  this  course  were  pursued.  They  put 
the  responsibility  upon  the  nation  and  the  obligations  toward 
the  foreign  Powers  upon  the  shoulders  of  the  President  of 
the  Board  of  Communication  and  Posts.  As  the  Board  of 
Communications  and  Posts  was  the  storm  center  no  offi- 
cial, willing  or  strong  enough  to  assume  any  responsibility, 
could  be  found  to  preside  over  it.  This  explains  the  short 
terms  held  by  Mr.  Sheng's  predecessors  in  this  office,  most 
of  whom  were  sacrificed  to  the  hostility  and  intrigues  of  the 
provincials.  In  19 10,  as  we  remember,  when  the  Ministry 
of  Communications  proposed  to  nationalize  the  Shanghai- 
Hangchow-Ningpo  road,  agitation  was  so  strong  that  it  had 
already  practically  led  to  and  later  culminated  in  a  revolt. 

When  Mr.  Sheng  Hsuan-huai  was  raised  to  the  Presi- 
dency of  the  Board  of  Communications  in  January,  191 1, 
he  proved  himself  courageous  enough  to  carry  out  the  Im- 
perial will.     Mr.  Sheng  was  regarded  with  great  esteem  by 


343]  NATIONALIZATION  OF  RAILWAYS  n5 

the  Peking  authorities  because  of  his  intimate  relations  with 
the  Hukuang  gentry.1  His  ability  was  recognized  by  for- 
eigners and  Chinese  alike,  and  he  was  depended  upon  to  win 
over  the  people  and  thus  overcome  their  hostility  to  the  Hu- 
kuang Loan,  the  terms  of  which  could  not  be  altered  at  that 
time  because  the  foreign  banks  considered  them  already  too 
liberal  for  the  safeguarding  of  their  investments.  But,  un- 
fortunately, he  was  not  strong  enough,  or  rather  the  Gov- 
ernment was  not  strong  enough  to  support  him,  and  his 
records  in  the  administration  of  the  China  Merchants'  Steam 
Navigation  Co.  and  of  the  Imperial  Telegraphs  were  not 
clean  enough  to  secure  the  confidence  of  the  people. 

To  make  matters  worse,  within  four  months  of  office  he 
had  produced  in  the  history  of  China  an  extraordinary  per- 
iod of  frenzied  finance  and  had  increased  China's  indebted- 
ness on  paper  by  £17,500,000  sterling. 

On  March  24th,  a  loan  of  Yen  10,000,000  from  the  Jap- 
anese and  on  April  7th,  another  of  £500,000  from  the  East- 
ern Extension  and  Great  Northern  Telegraph  Cos.  were 
floated  by  him  for  the  purpose  of  defraying  the  expenses  of 
the  Board.  By  April  18th,  he  had  contracted  with  the  Four 
Nations'  Banking  Group  a  loan  of  £io,ooo,ooo,2  thirty  per 
cent  of  which  was  to  be  expended  for  Manchurian  develop- 
ment, the  balance  for  currency  reform.  The  people  were 
greatly  excited  by  the  announcement  of  the  latter  big  loan. 
They  sent  to  Peking  violent  protests  which  the  Government 
ignored  until  too  late. 

After  having  concluded  the  above  successfully,  Mr.  Sheng 
then  turned  his  attention  to  the  perplexing  railway  prob- 

1  The  Pinghsiang  Colliery  and  Railway,  the  Taych  Iron  Mines  and 
the  Hanyang  Iron  &  Steel  Works,  all  located  in  Hunan  &  Hunch,  had 
been  managed  by  Mr.  Sheng. 

3  This  loan  was  not  floated  owing  to  the  Revolution  of  191 1.  See 
China  Year  Book,  1914,  chapter  on  Finance. 


n6  RAILWAY  PROBLEMS  IN  CHINA  [344 

lems.  He  decided  to  have  the  question  of  authority  cleared 
up  once  for  all  and  definitely  settled  between  the  provinces 
and  Peking,  because  in  almost  every  case  the  provinces  op- 
posed the  application  of  such  foreign  loans  as  were  handled 
through  the  central  authorities.  He  knew  well  that  until 
this  vital  question  of  provincial  and  central  rights  was 
solved  one  way  or  the  other,  railway  development  through- 
out the  whole  country  would  remain  at  a  standstill. 

Realizing  that,  without  a  more  effective  control  over  the 
loan  funds,  the  foreign  financiers  would  never  agree  to  ad- 
vance the  vast  sums  required  for  reorganization  and  re- 
form, and  aiming  to  carry  out  the  Imperial  desire  which  em- 
bodied an  active  federal  policy  of  strengthening  the  Central 
Government  immediately  after  the  organization  of  the  Coun- 
cil-Cabinet,1 Mr.  Sheng  chose  the  method  of  centralization 
in  dealing  with  the  railways.  The  policy  of  centralization  of 
the  control  of  railways  was  then  clearly  outlined.  With  the 
support  of  Prince  Ching's  Cabinet  he  obtained  the  approval 
of  the  policy  from  the  Throne  which  had  been  convinced  of 
the  disorganization  and  weakness  resulting  from  the  failure 
of  the. provincial  companies'  attempt  at  railway  construc- 
tion. On  May  9,  191 1,  a  most  important  Imperial  Edict3 
was  issued  on  Mr.  Sheng's  advice,  proclaiming  in  part  as 
follows : 

After  careful  and  repeated  deliberations,  the  nation  must  pos- 
sess a  complete  system  of  trunk  lines  to  and  from  the  four 
quarters  of  her  territory  in  order  to  administer  the  Govern- 
ment by  a  grasp  on  the  central  pivot.  .  .  .  Therefore,  we  de- 
sire to  proclaim  explicitly  to  the  world  that  all  the  trunk  rail- 

1  The  Edict,  abolishing  the  Grand  Council  and  organizing  a  Cabinet, 
was  issued  on  May  9,  191 1,  while  amendments  were  made  in  the  As- 
sembly regulations  giving  greater  power  to  the  people.  See  Peking 
Gazette  of  May,  191 1. 

'Ibid. 


34-]  NATIONALIZATION  OF  RAILWAYS  ny 

ways  shall  be  State-owned ;  this  shall  be  the  fixed  policy. 
Whatever  trunk  railways  in  the  provinces  which  were  under 
private  management  by  companies  established  before  the  third 
year  of  Hsun  Tung  (1911)  have  delayed  in  construction  long 
enough,  they  shall  immediately  be  taken  over  by  the  Govern- 
ment as  State-owned,  and  their  building  work  shall  be  pushed 
on  with  energy.  With  the  exception  of  the  branch  railways 
which  shall  continually  be  allowed  to  be  undertaken  by  the 
people  according  to  their  ability,  all  cases  of  trunk  railways 
formerly  granted  shall  be  cancelled.  With  regard  to  the  de- 
tails in  the  manner  of  taking  them  over,  let  the  Ministers  of 
Finance  and  of  Communications  and  Posts  gravely  obey  this 
Decree,  and  devote  their  whole  attention  to  devising  the  fulfil- 
ment of  it.  .  .  . 

Following  this  Edict  another  Imperial  decree,  purposing 
to  prevent  any  local  manipulation  of  local  shares,  was  issued 
prohibiting  the  sales  of  railway  shares  in  the  provinces  of 
Hunan,  Ilupeh  and  Szechuan  and  directing  the  viceroys  and 
governors  to  assume  responsibility  for  the  maintenance  of 
order  and  the  protection  of  officials  engaged  in  the  nation- 
alization of  the  Canton-Hankow  and  Szechuan-Hankow 
trunk  lines  and  the  carrving-out  of  the  construction  program. 
Mr.  Tuan  Fang  was  then  sent  to  Hupeh,  Hunan  and  Sze- 
chuan to  explain  the  Government  railway  policy  and  was 
appointed  Director-General  of  these  two  lines  with  the  au- 
thority to  handle  their  transfer.  Also,  all  provincial  and 
railway  officials  were  instructed  to  facilitate  this  transfer. 
Mr.  Tsen  Chen-hsuan  was  despatched,  as  Viceroy  of  Sze- 
chuan, to  replace  Mr.  Chao  Ehr-feng. 

Twelve  days  after  the  proclamation  of  State  ownership 
of  railways  the  signing  of  the  Hukuang  Loan  of  £6,000,000 
was  announced.  This  loan  was  to  be  floated  by  the  Four 
Nations'  banks.  It  had  been  under  negotiation  for  two 
years  and  was  the  crux  of  the  contentions  between  the  prov- 


n8  RAILWAY  PROBLEMS  IN  CHINA  [346 

inces  and  the  Central  Government,  between  the  Government 
and  the  Powers  interested  and  among  the  Powers  them- 
selves. 

The  Hukuang  agreemnt  and  the  nationalization  edict 
were  regarded  by  the  Provincial  Assemblies  and  the  Rail- 
way Bureaus  as  successive  direct  challenges  and  breaches  of 
promises  by  the  Government.  Protests  came  to  Peking 
from  almost  every  Provincial  Assembly,  from  almost  every 
railroad  company  and  from  different  kinds  of  associations 
and  newspapers.  The  Government  was  accused  of  break- 
ing its  promise  to  cencede  the  people  the  right  of  consid- 
eration of  national  affairs,  of  floating  loans  and  of  depriv- 
ing the  Chinese  of  the  right  to  build  their  own  railways 
without  placing  the  questions  before  the  National  Assembly 
for  consideration  and  approval.  Delegates  wrere  appointed 
by  various  "  Railway  Protection  Societies  "  to  visit  Peking, 
to  present  their  argument  against  the  foreign  loans,  etc. 
Their  first  intention  was  to  oppose  absolutely  foreign  loans. 
When  they  reached  Peking,  however,  they  modified  their 
attitude  to  a  claim  that  the  various  matters  under  protest 
should  be  decided  by  the  National  Assembly  and  that  the 
Government  should  abide  by  its  decision. 

Pending  the  deliberation  in  Peking,  matters  in  the  prov- 
inces went  from  bad  to  worse.  The  methods  adopted  by  the 
Government  for  taking  over  the  provincial  interests  were 
defective  in  many  respects  and  appeared  unjust  to  the  eyes 
of  the  private  owners.  The  principle  outlined  for  redeem- 
ing the  various  lines  from  the  private  owners  was  to  pay  the 
shareholders  in  cash  the  actual  value  of  their  property  as 
constructed  up  to  the  time  of  transfer,  and  further  to  repay 
to  them  out  of  the  prospective  profits  of  the  road  any  money 
that  had  been  wasted  or  otherwise  lost  in  the  enterprise. 

For  the  redemption  of  the  Hunan-Hupeh  section  of  the 
Canton-Hankow  road  the  Government  was  to  pay  the  share- 


.4~]  NATIONALIZATION  OF  RAILWAYS  119 

holders  cash  to  the  amount  of  60  per  cent  of  their  share 
script,  and  to  give  them  bonds  for  the  other  40  per  cent, 
payable  out  of  the  future  profits.1  It  seemed  at  one  time 
that  the  financial  interests  in  Hunan  and  Hupeh  were  at  the 
point  of  accepting  the  terms  offered  and  that  the  people 
there  might  possibly  have  been  pacified. 

But  the  Government  was  not  willing  to  pay  the  share- 
holders of  the  Szechuan-Hankow  road  what  they  wished 
in  cash  because  only  a  very  little  actual  construction  w<  >rk 
had  been  done  by  the  company.  The  Government  pro- 
posed to  settle  with  the  shareholders  by  making  good  the 
funds,  which  the  company  had  wasted,  out  of  the  future 
profits  of  the  road.  The  Szechuan  Railway  Bureau  strongly 
objected  to  this  method  of  settlement  with  the  shareholders. 
The  Government,  on  Mr.  Sheng's  advice,  acted  with  firm- 
ness and  with  no  intention  of  changing  its  plan  in  the  im- 
pending crisis.  Agitation  was  then  directed  against  the 
manner  in  which  the  policy  of  nationalizing  the  railways  was  / 
carried  into  effect  by  Mr.  Sheng  Hsuan-huai. 

To  make  matters  worse,  Air.  Tuan  Feng  (who  was  later 
murdered  by  the  Szechuan  people)  and  Air.  Tsen  Chen- 
hsuan  had  brought  troops  with  them  upon  their  mission. 
This  startled  the  already  angered  populace  in  Szechuan  ^/ 
and  elsewhere.  The  people  of  Szechuan  then  demanded 
an  explanation  of  such  an  action.  The  reply  was  unsatis- 
factory. Therefore,  they  suspected  that  the  real  reason  of 
the  Government's  wishJio  secure  control  of  the  railways  was 
to  use  them  for  military  purposes  in  keeping  the  people  in 
subjection.  The  Province  of  Szechuan  passed  from  agita- 
tion to  revolt.  The  avowed  revolutionists  and  constitution- 
alists lost  no  time  in  taking  the  long  and  eagerly  looked: 
for  opportunity  of  carrying  on  a  hut  campaign  against  the 

1  U.  S.  Daily  Consular  and  Trade  Reports,  Sept.  9.  ion.  no.  219. 


120  RAILWAY  PROBLEMS  IN  CHINA  [348 

Manchu  Throne.  From  city  to  city,  from  province  to  pro- 
vincepthe  fire  continued  to  spread. ...  On  October  10,  191 1, 
the  explosion  of  a  bomb  in  the  city  of  Wuchang,  capital  of 
Hupeh,  signaled  the  downfall  of  the  Manchu  dynasty;  and 
the  world  was  astounded  by  the  most  remarkable  revolution 
of  modern  times. 

Subsequent  events  showed,  however,  that  not  all  the  peo- 
ple opposed  the  nationalization  policy  as  such.  Most  of_ 
them  opposed  it  because  of  the  manner  and  method  by  which 
the  policy  was  carried  out.  To  say  that  the  revolution  was 
caused  entirely  by  Mr.  Sheng's  policy  or  by  the  conclusion 
of  the  Hukuang  Loan  Agreement  is  to  misread  history. 
By  article  III  of  the  Loan  Agreement,1  it  had  become  in- 
cumbent upon  the  Government  to  take  over  the  lines  already 
constructed  in  Hupeh  and  Hunan.  This  was  resented  by 
the  shareholders,  who  showed  their  dissatisfaction  in  the 
usual  way.  The  differences  over  the  matter  would  no  doubt 
have  ultimately  been  settled  had  not  other  forces  such  as 
floods,  famine  and,  above  all,  the  revolutionary  campaign 
which  had  been  at  work  for  years  seeking  to  overthrow 
the  Manchu  dynasty  and  to  restore  Chinese  control,  united 
to  make  the  revolution  popular. 

II.  The  Government's  Railway  Policy 

During  the  Revolution  of  191 1,  the  Provisional  Gov- 
ernment at  Nanking  under  Dr.  Sun  Yat-sen  had  been  pre- 
pared to  pledge  to  the  Japanese  independent  bankers  for 
whatever  loans  they  could  raise  the  properties  of  the  China 
Merchants'  Navigation  Company,  the  Kiangsu,  Chekiang, 
Kiangsi,  Fukien  lines  and  the  southern  section  of  the 
Canton-Hankow  road,  the  Hanyang  Coal,  Iron  and  Steel 
enterprises   and    other   mining   and    industrial    companies. 

1Cf.  infra,  Hukuang  Loan  Agreement  and  References. 


349]  NA  TIOXALIZA TION  OF  RAILWAYS  Y  2  i 

These  loans  were,  however,  checked  by  the  Government  at 
Tokio,  owing  in  some  cases  to  the  protests  of  the  British 
and  of  other  foreign  governments.  Out  of  the  efforts  made 
by  the  Nanking  Government  to  raise  foreign  loans  only  a 
few  negotiations  were  successfully  concluded  and  only  small 
advances  were  obtainable.1 

After  his  resignation  from  the  Provisional  Presidency, 
in  September,  191 2,  Dr.  Sun  was  empowered  by  President 
Yuan  Shi-kai  to  organize  a  national  corporation  or  com- 
pany for  the  financing  and  construction  of  future  railways 
in  China.  The  Chinese  National  Railway  Corporation  was 
thereby  organized  at  Shanghai  with  Dr.  Sun  as  its  Director- 
generaTT  Dr.  Sun  then  appointed  Mr.  George  Bronson  Rea  2 
as  Technical  Secretary.  The  plans  of  the  corporation  were 
accordingly  outlined  comprising  a  comprehensive  scheme3 
for  the  constructionTof  io^bbo  miles  oTessential  trunk  lines 
which  were  to  be  financed  and  constructed  over  a  period  of 
from  ten  to  fifteen  years,  calling  for  an  expenditure  of 
approximately  £100,000,000. 

Mr.  Rea  was  then  delegated  by  Dr.  Sun  to  visit  Europe 
and  initiate  negotiations  for  financing  the  contemplated  lines. 
Mr.  Rea  succeeded  in  arranging  a  contract  on  a  percentage 
basis  with  Messrs.  Pauling  &  Company,  a  great  railway 
contracting  firm  of  London,  for  financing  and  constructing 
the  Canton-Chungking  line.4     The  contract  was  signed  at 

1  Far  Eastern  Review,  Apr.,  1912,  special  copy  on  "  Financial  and 
Historical  Review  of  the  Chinese  Revolution." 

2  Mr.  Rea  is  the  proprietor  and  editor  of  the  Far  Eastern  Review 
(Shanghai),  a  monthly  devoted  to  Commerce,  Engineering-  and 
Finance  in  the  Far  East. 

3  For  details  of  the  scheme  see  China  Year  Book,  1914,  chapter  on 
Communications.  For  map  of  the  scheme  see  Far  Eastern  Review, 
June,  1913,  p.  15. 

4  Cf.  infra,  pp.  160-161. 


122  RAILWAY  PROBLEMS  IN  CHINA  r->-,0 

Shanghai  on  July  4,  191 3,  between  Dr.  Sun  and  Lord 
French,  the  representative  of  the  Pauling  firm.  Later  when 
Dr.  Sun  was  implicated  in  the  Second  Revolution  against 
President  Yuan  his  powers  as  Director-General  of  the 
Chinese  National  Railway  Corporation  were  annulled  by 
the  President  in  a  special  mandate  issued  two  days  after 
the  outbreak  of  the  revolution.  The  Corporation  was  there- 
by dissolved.  The  contract,  which  was  regarded  by  Mr. 
Rea  as  creating  a  new  precedent  for  the  construction  of 
railways  in  China  "  because  of  the  most  favorable  financial 
and  construction  terms  ever  accorded  to  any  government  for 
this  kind  of  work,"  was  transferred  with  little  modification 
by  the  Peking  Government  to  the  Shasi-Shingyifu  Railway.1 
Although   the    form   of   government   was   changed,    the 

/  policy  of  centralization  could  not  and  most  probably  will 
not  be  changed  for  generations  to  come.  From  the  be- 
ginning of  the  new  Republic  the  difficulties  of  central  con- 
trol of  finance  were  felt.  The  determination  of  the  Pro- 
visional Government  at  Peking  to  retain  all  borrowing 
powers  in  the  hands  of  the  Central  Government  was  strongly 
resisted  by  some  of  the  financial  interests  in  the  provinces 
and  a  certain  political  party,  who  endeavored  to  assert  their 
right  to  independent  financial  operations  and  loans  raised 
on  provincial  securities.  This  and  other  causes  precipitated 
the  Second  Revolution  on  July  18,  191 3. 

Since  the  First  Revolution  merchants  and  others  had 
suffered  bitterly  by  the  disorganization  of  commerce  and 

\/ihe  unsettled  state  of  the  country  and  had  hoped  for  the 
permanent  removal  of  disaffection,  a  chance  to  return  to 
security,  and  a  distinct  promise  of  the  general  resumption 
of  business.  With  the  disappearance  of  the  Manchu  dynasty 
as  a  common  ground  of  opposition  the  Second  Revolution 

1  Cf.  infra,  p.  159. 


oej]  NATIONALIZATION  OF  RAILWAYS  123 

lacked  support  from  the  people  and  was  soon  suppressed. 
The  result  was  the  dissolution  of  the  Kwok  Min  Tang1  \/ 
(the  Young  China  Part}-)  and  the  Parliament,  and  the  for- 
mation of  the  Central  Administrative  Conference.  The  per- 
iod between  the  First  Revolution  and  the  Second  Revolu- 
tion may  be  called  a  period  of  two  years'  conflict  betweenv/^ 
the  different  political  parties  and  between  the  Central  Guv- 
ernment  and  the  provinicial  interests — a  period  of  practical 
deadlock-—- 

With  the  inauguration  of  the  Republic  after  the  Second 
Revolution  the  Central  Government  was  left  without  funds 
and  was  confronted  with  immense  liabilities.  The  pro- 
vinces failed  to  contribute  their  quota  of  revenue.  The 
Government  was  thus  forced  to  turn  its  attention  to  foreign 
loans  in  order  to  eke  out  its  existence.  The  Crisp  Loan, 
the  Reorganization  Loan,  and  several  small  loans  were  thus 
contracted. 

In  the  meantime  the  Government  struggled  to  solidify 
its  position.  After  exerting  much  energy  and  overcoming 
much  trouble  it  succeeded  in  centralizing  the  financial  con- 
trol to  a  certain  extent.  The  Minister  then  took  an  im- 
portant step  in  defining  clearly  the  central  and  provincial 
powers  with  regard  to  financial  control  in  a  set  of  instruc- 
tions x  issued  to  the  provinces.  The  essential  instructions 
are  as  follows : 

1.  Xo  province  will  be  allowed  to  contract  foreign  loans 
after  June  next  year  (1914). 

2.  With  the  exception  of  industrial  loans,  the  amount  of  a 
loan  should  not  exceed  $3,000,000  (Mex.). 

3.  The  proceeds  of  the  loans  should  be  used  only  for  mili- 
tary expenses,  returning  overdue  loans  or  paying  other  un- 
avoidable  expenses.     The   ordinary   administrative   expenses 

■  Eastern  Review,  Nov.,  1913,  P-  211. 


124  RAILWAY  PROBLEMS  IN  CHINA  [352 

should  be  defrayed  by  the  revenues  of  the  province,  and  no 
loan  should  be  used  for  administrative  purposes. 

4.  Before  concluding  a  loan,  the  province  should  first  report 
to  the  Ministry  of  Finance  the  source  from  which  the  repay- 
ment of  the  loan  is  to  be  made. 

5.  No  revenue  which  is  included  in  the  class  of  national  tax 
should  be  used  as  security  for  loans  by  the  provinces. 

6.  Before  signing  a  loan  agreement,  the  draft  of  the  agree- 
ment should  be  approved  by  the  Ministry  of  Finance. 

7.  A  comprehensive  and  detailed  statement  of  the  expendi- 
ture of  every  loan  should  be  submitted  to  the  Ministry  of 
Finance. 

Also,  in  view  of  the  troubles  involved  in  the  foreign  loans 
raised  by  the  private  entrepreneurs,  such  as  in  the  cases  of 
the  Kiangsu  Railway  Company,1  the  Hanyihping  2  and  other 
loans,  the  Government  has  drawn  up  a  new  set  of  regula- 
tions governing  the  conditions  under  which  merchants  may 
contract  foreign  loans.  The  regulations  3  issued  in  March, 
1914,  are  as  follows: 

1.  Any  merchant  who  borrows  foreign  loans  to  undertake 
business,  no  matter  whether  the  loan  is  a  new  one  or  has  been 
discussed  in  the  past,  should  first  make  a  report  to  the  Min- 
istry to  whose  control  his  occupation  is  subject. 

2.  When  circumstances  necessitate  the  merchant  making  a 
foreign  loan,  he  should  first  make  a  report  to  the  Ministry 
stating  its  use  and  the  source  from  which  he  can  derive  money 
for  its  repayment. 

1  Cf.  infra,  p.  128. 

s  The  Hanyihping  Co.,  i.  e.,  Hanyang  Steel  Works,  Taiyih  Iron  Mines 
and  the  Pinghsiang  Colliery,  had  arranged  a  loan  of  Yen  15,000,000 
with  Japanese  financiers.  Sheng  Hsuan-huai,  who  fled  to  Japan  when 
the  first  revolution  broke  out,  was  accused  of  negotiating  for  the  dis- 
posal of  his  shares  to  the  Japanese.  Thus  a  storm  of  protest  arose. 
The  Government  was  dragged  in  and  asked  to  take  over  the  enterprise. 

3  Far  Eastern  Review,  March,  1914,  p.  395. 


353]  NATIONALIZATION  OF  RAILWAYS  I2z) 

3.  Merchants  who  have  been  allowed  by  the  Ministry  to 
make  foreign  loans  should  submit  the  agreement  for  such 
loans  to  the  Ministry  for  its  approval.  Xo  agreement  should 
be  considered  as  valid  if  it  is  signed  before  the  Ministry  ap- 
proves it. 

4.  Before  the  signing  of  an  agreement,  the  merchant  should 
first  inform  the  Ministry,  which  will  send  a  delegate  to  witness 
the  signing,  and  no  loan  agreements  shall  be  considered  as  valid 
unless  they  have  been  subjected  to  the  above  processes. 

The  Government  has  also  issued  a  lengthy  statement * 
dealing  with  its  different  schemes  for  financial  relief,  its 
policy  towards  military  administration,  industrial  develop- 
ment, etc.  In  addition,  its  policy  towards  the  means  of 
communication  was  finally  set  forth  as  follows : 

We  will  be  careful  regarding  State  enterprises.  The  Gov- 
ernment will  only  undertake  such  projects  as  must  be  man- 
aged by  the  State,  while  other  business  enterprises  will  be  left 
to  the  people.  The  Government  will  not  compete  with  them, 
but  it  will  guide  and  encourage  them  .  .  . 

Railways,  navigation,  postal  and  telegraph  administration 
are  yet  in  the  budding  stage,  and  great  possibility  lies  before 
them.  We  will  draw  a  comprehensive  scheme  and  decide  upon 
the  order  of  development  according  to  the  relative  importance. 
The  most  important  thing  is  to  train  men  for  the  work.  They 
should  be  equipped  with  technical  education.  We  will  wel- 
come the  investment  of  foreign-capital  in  communication  en- 
terprises, provided  that  there  is  no  political  significance. 
Special  accounting  methods  will  be  employed  by  the  Ministry 
of  Communications  because  of  the  enormous  amount  of  for- 
eign loans  connected  with  the  railways  and  the  like.  All 
accounts  should  be  strictly  supervised  by  the  Government.  .  .  . 

Since  the  inauguration  of  the  Republic  the  public  has 

1  English  translation  of  text  of  statement,  in  Far  Eastern  Review. 
Nov.,  1913,  pp.  211-214. 


126  RAILWAY  PROBLEMS  IN  CHINA  [354 

realized  the  necessity  of  building  more  railways  and  the 
•'idea  of  inviting  foreign  capital  for  the  development  of  rail- 
ways has  become  deeply  rooted  in  the  mind  of  the  public. 
Hence  the  above  statement  regarding  the  railways. 

With  the  announcement  of  the  policy  regarding  the  rail- 
ways, measures  were  taken  by  the  administrative  authorities 
of  the  Ministry  of  Communications  to  unify  the  accounting 
and  statistical  systems  for  China's  railways.  This  was 
regarded  as  a  forward  movement  for  more  effective  control 
/of  all  Government  railways  and  as  a  first  effort  made  to 
introduce  all-round  standardization  of  things  connected 
with  the  railway. 

A  conference  was  inaugurated  with  Mr.  Yih  Kung-chao, 
vice-Minister  of  the  Ministry  of  Communications  and 
Director-General  of  Railways,  as  chairman,  and  Dr.  C.  C. 
Wang  as  vice-chairman.  Dr.  Wang  was  the  leading  spirit 
of  this  movement.  A  number  of  the  members  of  the  Min- 
istry interested  in  accounting  and  the  chief  accountants  of 
the  different  railways  were  then  appointed  as  members  of 
the  Commission  on  the  Unification  of  Railway  Accounts  and 
Statistics.  Dr.  Henry  C.  Adams,  the  expert  in  charge  of 
railway  statistics  and  accounts  of  the  United  States  Gov- 
ernment, was  engaged  as  Adviser. 

The  success  made  by  the  Commission  in  overcoming  the 
many  peculiar  difficulties  arising  from  the  different  nation- 
alities and  languages  involved  and  the  established  habits 
and  methods  in  keeping  accounts  of  the  different  railways 
was  hailed  with  praise  from  many  quarters  as  a  precedent 
for  such  an  undertaking  not  only  in  China  but  also  in  other 
parts  of  the  world.  To  illustrate  the  difficulties  confront- 
ing the  Commission,  in  the  conference  three  languages,  i.  c, 
Chinese,  English  and  French,  had  to  be  used  for  discussion. 

A  distinct  movement  made  by  the  Republican  Govern- 
(y     ment  was  the  great  allotment  of  railway  mileage  to  foreign 


355]  NATIONALIZATION  OF  RAILWAYS  127 

syndicates.  Up  to  end  of  the  year  191 3,  the  new  Govern- 
ment has  approved  approximately  3S00  miles  of  railways  to 
be  constructed  with  foreign  capital.  The  new  lines  ar- 
ranged for  during  the  year  are  as  follows : 

1.  The  Tatung-Chengtu   Railway,   1,200  miles,  granted  to 
the  Societe  Generate  de  Belgiquc. 

2.  The   Pukow-Sinyang   Railway,   350   miles,   the    Chinese 
Central  Railway  Co.,  Ltd.,  of  London. 

3.  The   Shasi-Singyi   Railway,   760  miles,   contracted   with 
Messrs.  Pauling  &  Co.,  Ltd.,  London. 

4.  The  Tsinan-Shunteh  &  Kaumi-Hanchwang  Railways,  300 
miles,  conceded  to  German  syndicate. 

5.  South  Manchuria  Ry.  Feeders,  1,200  miles,  Japanese  in- 
terests. 

The  extent  of  new  lines  under  construction  during  the  year 
was  as  follows : 

1.  The  Hukuang  System,  1,200  miles,  Four  Nations'  Group. 

2.  The  Kalgan-Tatung  Railway,  100  miles,  practically  com- 
pleted by  the  Government  itself. 

3.  The  Lung-Tsing-U-Hai  Ry.,  1,500  miles,  Franco-Belgian 
interests. 

The  above  concessions  show  that  the  Government  has 
pursued  a  policy  intended  jtoco-prdinate  its  existing  railway 
systems  and  to  bind  them  by  judicious  connections  into  as 
complete  and  effective  an  organ  of  communication  and  de- 
velopment as  indicated  in  the  statement  of  its  general  policy. 
In  addition  to  these  concessions  the  Ministry  has  also  drawn 
up  plans  for  the  construction  of  all  important  lines.  It 
has  been  estimated  that  the  mileage  of  these  proposed  lines 
is  many  times  longer  than  before. 

The  new  Government  has  also  determined  to  take  up 
what  the  Manchus  have  left  undone,  i.  c,  to  nationalize  all 


128  RAILWAY  PROBLEMS  IN  CHINA  [35£ 

j)rovinicial  railways  which  form  sections  of  the  future  trunk 
s)-stenM1__J\^Sh«igTpoiicy*was  to  be  pursued.  The  first 
step  made  was  to  take  over  the  Shanghai-Hangchow-Ningpo 
Railway. 

The  Shanghai-Hangclwz^-Xincjpo  Raikcayj  As  pointed 
out  in  Chapter  VI,  the  management  of  this  road  was  un- 
satisfactory and  the  late  Government  had  already  made  an 
attempt  to  nationalize  it  in  19 10.  When  the  Revolution 
Government  at  Nanking  was  in  dire  need  of  money  the 
Kiangsu  Railway  Company,  for  patriotic  reasons,  signed 
a  loan  agreement  with  Okuma  &  Company,  one  of  the 
largest  Japanese  engineering  concerns,  to  advance  Tls. 
3,000,000,  at  par,  at  8  per  cent  interest,  secured  on  the 
revenues  and  physical  property  of  the  Kiangsu  section  of  the 
line.  Owing  to  the  protest  raised  by  the  British  Govern- 
ment, which  pointed  out  that  the  trouble  between  the  Rail- 
way Company  and  the  British  syndicate  still  remained  un- 
settled and  that  Japan's  participation  in  its  loan  would  com- 
plicate matters,  the  Japanese  Government  accepted  the 
British  proposition  of  suspending  the  payment  of  the  sec- 
ond and  subsequent  instalments  of  the  loan. 

In  1 9 1 3,  the  people  of  Kiangsu,  realizing  that  they  could 
not  secure  anv  return  on  their  investments  unless  a  change 
was  made,  consented  to  hand  over  their  property,  upon  a 
fair  valuation  of  the  Chiaotung  Pu,1  to  be  managed  as  a 
State  concern,  thus  hoping  to  regain  some  of  their  money. 
The  acquirement  of  the  Kiangsu  section  of  the  railroad  by 
the  Government  made  the  sale  of  the  Chekiang  section  of 
the  line  inevitable.  On  March  1,  1914,  the  proprietors  of 
the  Chekiang  Railway  held  a  meeting  at  Hangchow  and 
agreed  by  a  large  majority  to  sell  their  shares  to  the 
Government. 

1  New  name  for  the  Ministry  of  Communications,  changed  from  the 
old  name,  Yu  Chuan  Pu,  after  the  inauguration  of  the  Republic. 


357]  NATIONALIZATION  OF  RAILWAYS  129 

;~  TheHukuang  Railways.  By  the  end  of  191 2  at  a  con- 
ference held  by  General  Li  Yuan-hung.  Civil  Governor 
Liu  of  Hupeh  and  the  managers  of  these  lines,  it  was  de- 
cided that  the  Szechuan-Hankow  and  the  Canton-Hankow 
(the  Hupeh  and  Hunan  section)  should  be  nationalized. 
It  was  arranged  that  all  the  materials  for  the  construction 
of  the  railways  purchased  by  the  private  capitalists  should 
be  redeemed  by  the  Government.  The  funds  now  reserved 
by  the  "  People's  Railway  Company "  of  Hunan  and 
Hupeh  may  be  invested  in  other  commercial  enterprises  or 
in  constructing  the  tributary  lines  in  connection  with  the 
trunk  railways.  In  Chengtu  public  meetings  were  held  by 
the  shareholders  of  the  Szechuan-Hankow  road.  The 
shareholders  decided  to  utilize  their  funds  for  the  construc- 
tion of  lines  in  connection  wTith  the  main  lines. 

After  some  negotiations  between  the  representatives  of 
the  provinces  concerned  and  the  Ministry  of  Communica- 
tions the  policy  of  government  ownership  of  the  two  lines 
was  agreed  upon.  Terms  acceptable  to  both  parties  con- 
cerned were  arranged.  In  the  spring  of  19 13,  agreements 
of  transfer  x  were  made  between  the  railway  companies  and 
the  Ministry  of  Communications  regarding  the  taking-over 
of  the  two  roads  by  the  Ministry. 

The  Lotung  and  the  Tungfiii  Railways:  The  same  fate 
fell  upon  these  two  roads.  The  private  companies  organ- 
ized to  construct  them  have  been  in  existence  for  several 
years,  but  very  slow  progress  has  been  made  in  the  con- 
struction work.  The  Tungpu  line  runs  from  Tatungfu  in 
Northern  Shansi  to  Puchowfu  in  the  extreme  south  of  the 
province.  The  Ministry  of  Communications  has  contem- 
plated the  transfer  of  this  line  to  State  management,  and 
its  incorporation  into  a  big  trunk  system. 

iFor  full  text  of  the  transfer  agreement  for  Szechuan-IIanknw 
R.  R.,  see  Far  Eastern  Review,  March,  1913. 


130  RAILWAY  PROBLEMS  IN  CHINA  [358 

The  Lotting  line  forms  a  section  of  the  Lung-Tsing-U- 
Hai  line,  the  Northern  latitudinal  trunk  line.1  In  the  con- 
tract made  on  September  24,  191 2,  with  La  Compagnie 
Generate  dc  Chemins  de  Fer  et  de  Tramway  en  Chine, 
Article  IV,  section  2  provides  that  "  the  Chinese  Govern- 
ment obligates  itself  to  purchase,  equip  and  put  into  opera- 
tion the  Lotting  section,  granted  to  the  provincial  company 
of  Honan,  so  that  the  company  may  at  an  opportune  time 
take  all  necessary  steps  in  order  to  prosecute  without  delay 
and  hindrances  the  work  outlined  in  the  contract  to  the 
West."  At  the  end  of  the  year  1913,  the  Lotting  railway 
was  transferred  from  private  ownership  to  Government 
control  and  the  Government  is  earnestly  considering  the 
completion  of  this  line. 

The  Fukien  Railway.  In  19 14,  less  than  twenty  miles 
of  the  Fukien  railway  was  open  to  traffic,  and  the  financial 
condition  of  the  company  was  hopeless.  As  the  people 
of  the  province  objected  to  the  levying  of  additional  taxes 
for  the  construction  of  the  line,  the  company  requested  the 
Government  to  nationalize  the  line.  The  Ministry  of  Com- 
munications thereupon  sent  deputies  to  Fukien  to  take  over 
the  property. 

China's  Trunk  Lines:  At  the  end  of  the  year  1912,  the 
Ministry  of  Communications  proposed  four  trunk  lines,  two 
running  north  and  south  and  two  running  east  and  west, 
through  the  whole  country.  The  proposal  was  submitted 
to  the  Cabinet  and  met  with  approval.  The  lines  are  as 
follows : 

I.  The  Central  longitudinal  line,  beginning  from  Mon- 
golia, running  through  Peking  and  Shansi,  turning  south- 
ward to  Hankow  and  thence  to  Chin  Lung.  Peking  is  to 
be  the  center  of  this  line. 

1  Cf.  infra,  pp.  154-157. 


359]  XATI0XAL1ZATI0N  OF  RAILWAYS  1^1 

II.  The  Eastern  longitudinal  line,  beginning  from  Man- 
churia, passing  through  Chihli,  Shantung,  Kiangsu,  and 
Chekiang  and  ultimately  reaching  Fukien  and  Kwangtung. 

III.  The  Northern  latitudinal  line,  beginning  from  Hai- 
chow,  passing  through  Honan  and  Tungkwan  and  Kansu 
and  thence  to  Hi  (there  meeting  the  Central  Asiatic  Rail- 
way ?). 

IV.  The  Central  latitudinal  line,  beginning  at  the  Nan- 
king terminus  of  the  Nanking-Shanghai  Railway,  passing 
through  Wuchang,  and  entering  Szechuan. 

When  the  above  trunk-line  system  is  compared  with  that 
outlined  in  Mr.  Tsen  Chen-hsuan's  memorial  presented  to 
the  Manchu  Throne  several  years  before  there  is  a  marked 
difference  between  the  two.  Mr.  Tsen  suggested  a  system 
with  a  particular  center  from  which  all  trunk  lines  should 
radiate  to  different  parts  of  the  country — a  star  system — 
while  the  newly  approved  system  is  a  rectangular  system. 
Mr.  Tsen's  view  was  to  make  Peking  the  center  of  all  trunk 
lines,  which  were  to  be  four  in  number,  viz. : 

I.  The  Northern  trunk  line,  running  from  Peking 
through  Kalgan,  Kulun  (Urga)  and  then  to  Kiachta  in 
Mongolia. 

II.  The  Eastern  trunk  line,  made  by  extending  the 
present  Peking-Mukden  line  to  Aigun  via  Chiaonan  and 
Tsitsihar  in  Manchuria. 

III.  The  Southern  trunk  line,  beginning  from  Peking 
and  ending  at  Canton  via  Hankow,  i.  e.,  the  Peking-Canton 
line  when  completed. 

IV.  The  Western  trunk  line,  formed  by  extending  the 
line  between  Chengting  (on  the  Peking-Hankow  line)  and 
Tayuan  which  will  join  with  the  Tungpu  Railway,  to  the 
West  via  Tungkwan  and  Lanchow,  and  ultimately  enter- 
ing Hi. 


CHAPTER  IX 
International  Cooperation 

In  the  last  period  we  have  shown  that,  with  the  exception 
of  the  Chinese  Eastern  Railway,  the  Shantung  Railway 
and  the  French  Yunnan  Railway,  which  are  of  entirely 
political  origin,  nearly  all  railways  in  China  were  built  by 
foreign  loan  contracts  the  terms  of  which  are  very  dis- 
advantageous to  China.  Railway  loan  agreements  con- 
cluded in  the  last  period  show  that  China  has  entrusted 
even  the  control  and  the  expenditure  of  loan  funds  to  for- 
eign syndicates,  notwithstanding  that  ample  security  and 
high  interest  were  provided  for  the  loans.  This  was  due 
iiV-the  first  place  to  the  inexperience  of  the  governmental 
authorities  in  railway  matters  in  the  very  beginning;  hence 
a  bad  precedent  was  established  in  case  of  the  Peking- 
Newchwang  Railway  loan  agreement.  And  in  the  second 
place  this  was  due  to  the  fact  that  spheres  of  interest  were 
marked  out  and  the  foreign  syndicates  devoted  their  at- 
tention mostly  to  their  respective  spheres,  hence  at  that  time 
there  was  relatively  less  competition  and  rivalry  for  railway 
financing  and  construction  in  one  another's  spheres  than  in 
this  period. 

When  the  people  of  China  became  a  little  more  familiar 
with  the  railway  business,  when  China's  credit  was  improved 
more  or  less  and  when  the  foreigners  became  more  inter- 
ested in  Chinese  affairs,  trade  and  railway  construction,  the 
situation  underwent  a  change.  On  the  one  hand,  China 
could  secure  comparatively  more  liberal  terms  in  contract- 
132  [360 


36i]  INTERNATIONAL  CO-OPERATION  133 

ing  new  loans,  although  not  to  the  full  extent  accorded 
many  other  nations  who  raise  foreign  loans  for  railway 
construction.  On  the  other  hand,  there  was  created  a  new 
financial  arrangement — an  arrangement  between  different 
nations  To  have  several  rival  interests  combined  to  finance 
and  construct  a  certain  line  or  several  lines.  This  kind  of 
combination  is  not  only  new  in  the  history  of  old  China 
but  also  perhaps  in  the  history  of  railway  financing  in  any 
other  part  of  the  world.  It  will  be  best  to  study  a  little 
more  in  detail  the  important  cases  of  loan  negotiations  and 
contracts  in  this  period  so  as  to  illuminate  the  above 
features. 

The  Canton-Koidoon  Railway  * 

In  1898  the  British  and  Chinese  Corporation  had  secured 
the  concession  to  build  this  line.  The  concessionaires  had 
accomplished  nothing  until  1905  when  the  American  China 
Development  Company  agreed  to  give  up  its  concession  for 
the  construction  of  the  Canton-Hankow  line  and  to  receive 
in  compensation  a  sum  of  $6,750,000,  U.  S.  C,  a  part  of 
which  was  advanced  by  China  through  a  British  loan.  This 
line  is  very  important  for  maintaining  Hongkong's  position 
as  distributing  center  for  South  China,  because  if  a  deep 
water  harbor  were  established  somewhere  near  Canton  and 
in  connection  with  the  Canton-Hankow  line,  the  traffic 
through  Hongkong  would  be  lessened  by  severe  competition 
in  the  future.  After  the  purchase  of  the  American  inter- 
ests this  possibility  of  competition  may  be  eliminated. 

Before  the  end  of  1905,  the  Hongkong  Government  had 
proceeded  to  make  arrangements  to  construct  the  British 
section  of  the  line,  a  distance  of  22  miles,  through  Kowloon 
(British  leased  territory).     Meanwhile  negotiations  were 

1  Far  Eastern  Review,   Nov.,    1909,   pp.  335-345;   Kent,   Ry.   Ent.   in 
China,  pp.  I73-J76. 


I34  RAILWAY  PROBLEMS  IN  CHINA  [362 

carried  011  with  the  Peking  Government  to  construct  the 
Chinese  section  of  the  line,  a  distance  of  about  89  miles. 

The  final  agreement *  between  the  Chinese  Government 
and  the  British  and  Chinese  Corporation  was  then  signed 
on  March  7,  1907,  for  a  5  per  cent  gold  loan  of  £  1,500,000, 
issued  at  94.  The  general  rules  for  the  supply  of  materials 
are  similar  to  those  stipulated  for  the  Shanghai-Nanking 
Railway,  with  the  exception  that  a  lump  sum  of  £  35,000, 
instead  of  5  per  cent  commission  on  all  purchases,  was  paid 
for  all  services  rendered  in  the  construction  and  equipment 
of  the  line.  The  loan  is  guaranteed  by  the  Chinese  Gov- 
ernment and  secured  on  the  railway  when  completed.  The 
financial  terms  also  are  similar  to  those  of  the  Shanghai- 
Nanking  road.  The  life  of  the  loan  is  thirty  years,  repay- 
able at  102^  after  twelve  and  one-half  years,  or  at  par 
after  twenty-five  years. 

From  the  experience  on  the  Shanghai- Nanking  road 
where,  owing  to  the  control  of  expenditures  resting  entirely 
in  the  hands  of  the  British  chief  engineer,  the  usual  ex- 
travagance and  unnecessary  expenditures  in  management 
and  construction  had  been  the  results,  the  Government 
authorities  in  negotiating  this  loan  insisted  upon  some  modi- 
fications of  the  Shanghai-Nanking  terms  and  succeeded  in 
securing  for  the  Chinese  Director-General  participation  in 
the  supervision  of  the  funds  and  in  putting  the  Chinese 
Managing  Director  in  the  place  of  the  Board  of  Control, 
i.  e.,  the  administration  of  the  railway  is  thus  invested  in 
the  Managing  Director  who  is  appointed  by  the  Viceroy  at 
Canton.  With  the  Managing  Director  are  associated  a 
British  chief  engineer  and  a  British  chief  accountant.  These 
British  employees  are  nominated  and  certified  as  competent 
for  their  posts  by  the  Corporation  and  are  then  approved 

1  Kent,  appendix  F,  no.  4. 


363]  INTERNATIONAL  CO-OPERATION  135 

by  the  Viceroy.  If  their  services  should  prove  unsatis- 
factory to  the  Viceroy,  he  would  request  the  Corporation 
to  dispense  with  their  services  and  to  nominate  their  suc- 
cessors, and,  in  the  event  he  wished  to  remove  them  for 
good  cause,  it  should  be  done  in  consultation  with  the 
Viceroy. 

All  receipts  and  payments,  authorized  by  the  Managing 
Director,  must  be  certified  by  the  chief  accountant,  i.  e., 
while  the  Chinese  official  has  the  privilege  of  handling  the 
expenditures  the  accounts  are  supervised  and  checked  by  the 
British.  It  was  arranged  in  this  way  because  the  English- 
men usually  did  not  trust  the  Chinese  to  spend  a  foreign 
loan  honestly.  But  later  events  show  that  the  Englishmen 
themselves  are  experts  of  the  "  squeeze  "  and  are  not  all 
trustworthy. 

After  the  construction  work  on  the  line  had  been  started 
only  a  little  more  than  a  year,  charges  of  graft  and  cor- 
ruption were  directed  against  the  chief  accountant's  depart- 
ment. When  put  on  trial  the  chief  accountant  was  con- 
victed on  the  charge  of  embezzling  an  enormous  sum  of 
money. 

Notwithstanding,  this  loan  agreement  has,  in  practice, 
been  found  more  satisfactory  than  all  the  preceding  ones 
contracted  with  the  British  and  there  has  been  complete 
harmony  based  on  mutual  confidence  between  the  two 
parties. 

The  Tientsin-Pukow  Railway  1 

In  1898  Germany  and  Great  Britain  had  secured  jointly 
a  concession  for  constructing  this  line.  In  May,  1899,  the 
preliminary  negotiations  for  financing,  constructing,  equip- 

1  Kent,  pp.  148-153,  and  appendix  E  for  preliminary  agreement.  Far 
Eastern  Review,  pp.  309-310,  and  329-334  of  Nov.,  1009,  copy.  For 
final  agreement  (English  translation),  see  supplement  of  same  issue. 


1 36  RAILWAY  PROBLEMS  IN  CHINA  [364 

ping  and  operating  the  line  were  completed.  In  1900,  the 
Boxer  Uprising  suspended  further  progress.  In  June,  1902, 
negotiations  were  again  resumed  and  on  January  13,  1908, 
the  final  loan  agreement  was  concluded.  At  the  time  of 
negotiating  the  final  loan  contract  China's  credit  was  im- 
proved more  or  less.  The  Government  authorities,  who 
determined  to  reassert  a  little  of  China's  dignity,  insisted 
on  more  effective  "  control  "  of  the  line.  As  there  was 
rivalry  and  competition  between  the  German  and  British 
syndicates  for  the  loan,  China  succeeded  in  making  some 
important  modifications  of  the  old  loan  terms  and  in  estab- 
lishing a  more  favorable  precedent  for  future  loans. 

This  loan  is  known  as  the  Imperial  Chinese  Government 
5  per  cent  Tientsin-Pukow  Railway  Loan.  The  amount  of 
the  loan  was  fixed  at  £  5,000,000  to  be  issued  in  two  instal- 
ments. The  life  of  the  loan  is  thirty  years,  amortization 
to  commence  after  ten  years  in  half-yearly  installments  at 
a  premium  of  2^2  points  (£1023/2  on  every  £100  bond), 
and  at  par  after  twenty  years.  The  first  issue  was  placed 
on  the  market  in  March,  1908,  at  98^4,  for  £3,000,000,  of 
which  £1,890,000  was  raised  through  the  Deutsch-Asiatische 
Bank  in  Germany  for  the  German  section  of  401  miles  and 
£1,110,000  was  raised  through  the  Chinese  Central  Rail- 
ways, Ltd.,  in  London  for  the  construction  of  the  British 
section  of  235  miles.  Instead  of  paying  the  usual  20 
per  cent  of  the  profits  of  the  railway,  China  paid  a  lump 
sum  of  £200,000  to  the  Anglo-German  Syndicate  out  of 
the  first  issue  of  the  bonds. 

The  loan  was  oversubscribed  in  Europe  for  several  times 
its  value.  A  considerable  portion  was  also  subscribed  for 
by  Chinese  in  Peking  and  Tientsin.  An  amount  of  £260,000 
in  bonds  exclusive  of  those  purchased  by  private  native 
investors  is  also  held  by  the  provincial  governments  of 
Chihli,  Shantung,  Kiangsu  and  Anhui.     The  price  to  the 


365]  INTERNATIONAL  CO-OPERATION  i^y 

Government  for  the  first  floating  was  93,  and  the  second 
was  the  actual  rate  of  issue  to  the  public,  less  5l/2  points 
commission  to  the  financial  syndicates. 

The  loan  service  is  met  from  the  earnings  of  the  road. 
The  loan  is  secured  on  the  Likins  and  internal  provincial 
revenues  of  Chihli,  to  the  amount  of  1,200,000  Haikwan 
Taels  per  year,  of  Shantung,  1,600,000  Hn.  Tls.  per  year, 
the  Nanking  Likin  of  900,000  Tls.  per  year,  and  the  Huaian 
Native  Customs  in  Kiangsu  of  100,000  Tls.  per  year.  At 
the  same  time  the  loan  is  guaranteed  by  the  Central  Govern- 
ment. The  railway  itself  is  not  mortgaged  as  collateral  se- 
curity as  in  the  case  of  previous  lines.  It  was  for  the  first 
time  stipulated  in  a  foreign  loan  agreement  that,  in  case  of 
default  on  the  loan  service,  the  hypothetical  revenues  were 
to  be  administered  by  the  Maritime  Customs  Service. 

The  signing  of  this  agreement  marked  the  square  deal 
for  the  first  time  in  the  history  of  railway  loans  in  China, 
and  the  first  recognition  by  the  foreign  banks  of  China's 
right  to  participate  in  the  control  of  loan  funds  and  con- 
struction. The  old  principle  of  joint  management  was  Ky// 
abandoned.  The  construction  and  control  of  the  road  rest 
entirely  in  the  Government. 

China  has  the  power  to  appoint  experienced  British  and 
German  chief  engineers,  acceptable  to  the  Anglo-German 
syndicate.  These  engineers  are  subordinate  to  the  control 
of  the  Chinese  Managing  Directors  of  the  two  sections  re- 
spectively. In  the  employment  and  dismissal  of  the  techni- 
cal employees  of  the  line,  the  Managing  Director  and  the 
chief  engineer  have  to  concur  and  submit  their  differences 
of  opinion  to  the  Director-General  for  decision.  China  also 
secured  the  privilege  of  appointing  a  European  chief  en- 
gineer to  administer  the  entire  line  after  construction,  with- 
out reference  to  the  syndicate. 

The   Director-General    retained    in   his   hands   complete 


138  RAILWAY  PROBLEMS  IN  CHINA  [366 

control  of  the  funds  derived  from  the  loan,  subject,  how- 
ever, to  the  condition  that  the  loan  funds  should  be  drawn 
upon  a  requisition  signed  by  the  managing  directors  who 
were  to  certify  for  what  the  money  was  required.  There 
was  no  provision  for  the  services  of  a  foreign  accountant 
to  certify  payments,  as  in  the  case  of  the  other  loans.  A 
modern  system  of  accounting  was,  however,  provided  for, 
subject  to  inspection  at  intervals  by  a  representative  of  the 
syndicate  in  order  to  verify  the  payments.  The  purchase 
of  materials  was  also  arranged  for  on  a  most  favorable 
basis  for  China. 

The  terms  of  this  agreement  were  the  most  favorable 
ever  conceded  to  China.  It  was  only  due  to  the  rivalry  and 
competition  of  the  British  and  German  interests  that  these 
well  known  "  Tientsin-Pukow  "  terms  have  come  about. 
The  Germans  have  taken  all  the  credit  of  conceding  these 
liberal  terms  to  China  and  were  loud  in  their  praise  of  the 
generous  terms,  while  the  British  financiers,  who  were  usu- 
ally more  or  less  selfish  in  dealing  with  China  and  forgot 
entirely  the  notorious  case  of  the  Canton-Kowloon  road, 
held  the  opinion  that  Chinese  official  honesty  was  not  trust- 
worthy and  that  the  terms  were  too  liberal  and  were  not 
sufficient  to  guarantee  the  bondholders. 

When  the  agreement  went  into  effect  matters  in  the  two 
sections  of  the  road  developed  exactly  contrary  to  what 
the  respective  foreign  syndicates  had  thought.  In  the  Ger- 
man section  some  discrepancies  occurred  in  the  accounts  to 
the  amount  of  Tls.  3,000,000  and  other  graft  was  discov- 
ered in  the  accounting  department.  This  occurrence  of 
frauds  was  a  hard  blow  to  the  Tientsin-Pukow  terms.  The 
burden  of  this  disgrace,  however,  can  not  be  accepted  in  its 
full  weight  by  the  Chinese  officials,  because,  owing  to  the 
carelessness,  negligence  and  lack  of  knowledge  of  the  rail- 
road business  on  the  part  of  the  Managing  Director,  the 


367]  INTERNATIONAL  CO-OPERATION  139 

Germans  have  an  equal  opportunity  of  conducting  the  busi- 
ness transactions,  and  contrary,  to  the  provisions  of  the  loan 
agreement  the  German  chief  engineer  enjoyed  equal  control 
over  the  accounting  department.  The  auditor,  or  rather  the 
representative  of  the  Anglo-German  syndicate,  should  also 
be  blamed  for  failing  to  discover  these  enormous  pecula- 
tions in  the  accounts. 

The  Managing  Director  and  his  confederates  were,  how- 
ever, removed  and  severely  punished  by  the  Government 
while  the  alleged  German  accomplices  whom  Chinese  law- 
could  not  reach  were  free  from  prosecution,  owing  to  the 
protests  of  their  innocence  by  the  German  interests.  The 
innocent  Director-General,  against  whom  no  breath  of  sus- 
picion had  been  stirred,  was  dragged  down  by  the  fall  of 
the  Managing  Director,  because  the  Government  held  him 
responsible  for  the  misdeeds  of  his  subordinates. 

Aside  from  this  dissension  and  fraud  the  operation  of 
the  "  Tientsin-Pukow  "  terms  was  as  a  whole  satisfactory. 
This  was  shown  in  the  British  section  where  the  Managing 
Director  was  an  able  man  and  knew  the  railway  business 
almost  as  thoroughly  as  the  British  chief  engineer.  He  was 
able  to  secure  low  prices  for  materials  which  had  formerly 
been  purchased  for  other  lines  by  foreign  purchasing  agents 
at  much  higher  prices.  He  gave  equal  opportunities  to  all 
manufacturers,  native  and  foreign,  and  awarded  many 
contracts  at  lower  prices  to  American  and  Continental  firms 
rather  than  the  British  manufacturers  whose  interests 
the  British  engineer  invariably  advocated.  Such  an  action 
on  the  part  of  the  Managing  Director  naturally  offended  the 
Englishmen  who  wanted  to  monopolize  the  supply  of  ma- 
terials since  the  loan  was  raised  in  England :  hence,  friction 
often  occurred  during  the  construction  of  the  road.  Not- 
withstanding this,  matters  progressed  very  favorably. 

The  German  or  northern  section  of  the  line  was  opened 


140  RAILWAY  PROBLEMS  IN  CHINA  [368 

to  traffic  in  February,  1912;  the  British  or  southern  section 
was  opened  in  June,  191 2.  This  road  traverses  an  ex- 
ceedingly rich  district,  and  is  already  making  itself  felt  in 
the  transportation  of  cargo  as  a  formidable  competitor  of 
the  old  Grand  Canal  route.  The  passenger  traffic  of  the 
Peking-Hankow  line  from  Peking  and  Tientsin  to  the  lower 
Yangtsze  Valley  is  also  more  or  less  diverted  to  this  road. 
At  the  present  these  are  the  only  two  lines  in  China  which 
may  be  said  to  have  to  face  the  problem  of  competition  as 
found  in  other  countries.  The  effect  of  the  Tientsin- 
Pukow  road  on  the  development  of  the  trade  of  Shanghai, 
as  the  great  commercial  center  for  Central  and  North  China, 
and  of  Pukow  and  Hankow,  as  interior  distributing  centers 
of  the  Republic,  is  a  matter  of  considerable  interest  which 
will  be  more  seriously  watched  in  the  future. 

The  Huknang  Railways  * 
(Canton-Hankow  and  Hankow-Szechuan  Railways) 

In  the  last  chapter  we  studied  the  fight  for  the  con- 
trol of  these  lines  between  the  provinces  concerned  and 
the  Central  Government.  Here  we  will  take  up  the  loan 
negotiations  between  China  and  the  interested  banking 
groups  of  the  different  Powers,  and  the  quarrel  among  the 
Powers  themselves  regarding  these  important  lines.  We 
shall  also  see  how  a  compromise  and  a  co-operation  of  inter- 
national finance — a  great  financial  combination  in  China — 
were  effected. 

On  October  1,  1903,  Great  Britain  succeeded  in  securing 
the  right  of  construction  for  her  own  and  American  capi- 
talists.    An  agreement  signed  by  Prince   Ching  with  the 

1  Far  Eastern  Review,  Apr.,  1910,  pp.  523-8;  June,  191 1,  passim  ;  Aug., 
191 1,  pp.  82-88;  Jan.,  1914,  pp.  290-307.  Bland,  Recent  Events  and  Pres- 
ent Policies  in  China  (Philadelphia,  1912),  pp.  322-5;  China  Year  Book, 
1 91 4,  pp.  233-5. 


369]  INTERNATIONAL  CO-OPERATION  i4I 

British  Minister  Sir  Ernest  Satow  stipulated  that  "  if  China 
desires  to  construct  a  Hankow-Szechuan  line  and  her  capi- 
tal is  insufficient,  she  will  obtain  all  necessary  foreign  capi- 
tal from  Great  Britain  or  the  United  States."  And  when 
the  Hongkong  Government  made  a  loan  to  China  for  the 
redemption  of  the  Canton-Hankow  concession  from 
America,  Great  Britain  also  secured  a  preferential  right 
to  supply  both  money  and  material  for  the  construction 
of  the  Canton-Hankow  line. 

In  the  early  part  of  the  year  1909,  China  decided  to  raise 
a  loan  for  the  construction  of  the  above  two  lines.  In  ac- 
cordance with  her  agreement  with  Great  Britain,  China 
extended  the  first  chance  to  the  British  and  Chinese  Cor- 
poration to  supply  the  loan — the  corporation  being  an  amal- 
gamation of  British  and  French  interests  since  1905.1 
Meanwhile  German  interests  expressed  a  desire  to  partici- 
pate in  the  loan.  On  March  1,  1909,  a  tripartite  agreement 
was  arranged  in  Paris  after  a  stormy  conference.  On  April 
2,  an  American  banking  group  (the  China  Investment  and 
Construction  Company)  also  formally  proposed  American 
participation  in  the  loan  by  addressing  the  British  and 
Chinese  Corporation. 

During  the  negotiations,  Mr.  J.  O.  P.  Bland,  the  represen- 
tative of  the  British  syndicate,  determined  to  have  the 
"  Canton-Kowloon  "  terms  applied  to  the  agreement,  while 
Grand  Councillor  Chang  Chih-tung  insisted  that  "  Tientsin- 
Pukow  "  terms  should  be  stipulated.  To  this  Mr.  Bland 
refused  to  accede,  and  negotiations  were  abruptly  broken 
off  by  the  Grand  Councillor  because  of  the  British  arr<  »g- 
ance.     Some  German  bankers  then  stepped  in  and  offered  t  1 

1  Agreement  between  certain  British  corporations,  a  group  of  I 
capitalists  and  Chinese  Central  Rys.,  Ltd.,  for  the  construction  of  the 
Sinyang-Pukow  and  Hankow-Chengtu  Rys.,  signed  on  Oct.  2,  1905 ;  see 
Far  Eastern  Review,  Jan.,  1914,  pp.  3°5"307- 


I42  RAILWAY  PROBLEMS  IN  CHINA  [370 

accept  the  "  Tientsin- Pukow  "  terms  and  at  the  same  time 
secured  some  special  privileges  over  the  Canton-Hankow 
Railway.  Immediately  a  preliminary  agreement  was  made 
to  float  a  loan  for  the  construction  of  the  Canton-Hankow 
line.  Thus  German  influence  was  let  into  the  Yangtsze 
Valley  which  Great  Britain  has  struggled  hard  to  maintain 
as  her  special  sphere  of  interest  for  many  years.  The 
British  Legation  in  Peking  at  once  lodged  a  strong  protest 
with  the  Grand  Councillor,  accusing  him  of  breach  of 
promise.  To  this  the  Grand  Councillor  replied  that  since 
the  British  syndicate  refused  to  accept  the  terms  similar 
to  those  of  the  Germans  their  preferential  rights  had  been 
canceled.  The  British  Government,  not  satisfied  with  this 
explanation,  maintained  that  the  pledge  was  made  to  the 
British  Government  and  not  to  the  British  syndicate,  and 
that  the  British  Minister  should  be  notified  so  that  other 
British  capitalists  might  take  up  the  loan.  In  consequence 
of  this  the  future  activity  of  the  British  and  Chinese  Cor- 
poration in  China  was  destroyed,  because,  during  the  sub- 
sequent loan  negotiations  in  Peking,  China  refused  to  deal 
with  the  representative  of  that  corporation.  Mr.  Bland, 
who  acted  for  a  good  many  long  years  in  the  Chinese  drama, 
"  lost  his  face  "  and  was  compelled  to  retire  from  the  "  flow- 
ery "  stage.  The  Hongkong  and  Shanghai  Banking  Cor- 
poration took  over  the  British  interests  in  China. 

At  the  same  time  the  people  of  the  nations  concerned  also 
accused  one  another.  Diplomatic  protests  and  recrimin- 
ations then  followed.  The  bankers,  however,  found  a 
means  of  solving  the  complicated  problem.  They  held  a 
conference  in  Berlin.  As  a  result  of  the  conference  a 
compromise  was  brought  about  to  the  effect  that  the  Hong- 
kong and  Shanghai  Banking  Corporation  and  its  French 
associates  agreed  to  combine  with  the  German  Group  to 
negotiate  a  loan  to  cover  not  only  the  Hankow-Canton  road 


371  ]  INTERNATIONAL  CO-OPERATION  ^3 

but  also  the  Hankow-Szechuan  line.  An  inter-group 
agreement  was  concluded  under  which  the  German  Group, 
after  having  agreed  to  withdraw  its  claim  over  the  Canton- 
Hankow  line  which  was  to  be  constructed  by  an  Anglo- 
French  Group  with  a  British  chief  engineer,  secured  the 
right  to  construct  a  railroad  from  Hankow  to  the  border 
of  the  Province  of  Szechuan  with  a  German  chief  engineer. 
Having  reached  this  compromise  the  tripartite  groups  con- 
cluded with  the  Grand  Councillor  on  June  6,  1909,  a  pre- 
liminary agreement  for  a  loan  of  £5,500,000,  accepting  the 
terms  embodied  in  the  Tientsin-Pukow  Agreement. 

On  June  10,  1909,  when  this  became  known,  the  Ameri- 
can Legation  in  Peking  forwarded  a  protest  to  the  Grand 
Councillor  against  the  ratification  of  the  preliminary  agree- 
ment on  the  ground  that  an  American  syndicate  had  secured 
an  original  promise  from  the  Chinese  Government  that  "  in 
the  event  of  the  floating  of  foreign  loans  for  the  Hupeh 
section  of  the  Szechuan  road  China  will  first  consult  America 
and  Great  Britain."  Protest  was  also  made  against  the 
items  in  the  proposed  loan  agreement  giving  preference  to 
German,  British  and  French  materials. 

At  the  same  time  the  American  Ambassador  in  London 
also  called  the  attention  of  the  British  Foreign  Office  to  the 
fact  that  Americans  had  the  right  and  the  desire  to  partici- 
pate in  the  loan  and  that  in  Article  III  of  the  agreement,1 
signed  on  October  2,  1905,  between  the  British  and  French 
groups  provision  was  made  for  American  participa 
According  to  the  same  agreement  a  period  of  twelve  months 
from  the  date  of  signature  was  named  as  the  time  within 
which  American  capitalists  might  notify  the  British  and 
French  Groups  of  their  desire  to  share  in  their  activities. 
Meanwhile,  a  number  of  American  capitalists,  mostly  Wall 
Street  bankers  headed  by  J.  P.  Morgan  &  Company,  formed 

1  Far  Eastern  Review,  op.  cit. 


I44  RAILWAY  PROBLEMS  IN  CHINA  [372 

a  powerful  group  with  the  object  of  backing  up  the  United 
States  Government's  attitude  x  toward  the  loan  and  entered 
the  field  for  participation  in  the  investment  in  China. 

The  Peking  authorities  found  it  hard  to  disregard  the 
American  claim  and  felt,  also,  that  it  was  an  advantage  to 
China  to  admit  the  American  interests.  But  as  the  pre- 
liminary agreement  had  already  been  signed  it  was  very 
difficult  to  change  any  of  the  conditions  without  arousing 
storms  of  protest  from  the  Governments  of  the  tripartite 
groups.  In  fact,  the  United  States  had  not  definitely  in- 
formed China  of  her  desire  nor  showed  any  determined 
eagerness  to  co-operate  in  this  loan  during  its  negotia- 
tion, until  the  European  syndicates  had  already  settled  the 
trouble  amongst  themselves  and  had  cleared  up  their  differ- 
ences with  China.2     The  American  Charge  d' Affaires,  Mr. 

1  The  United  States'  attitude  towards  the  loan  was  explained  in  an 
official  statement  given  out  from  Washington,  D.  C,  in  Oct.,  1909.  A 
part  of  the  text  of  the  statement  says :  "The  Government  of  the  United 
States  is  much  gratified  at  the  formation  of  a  powerful  and  respon- 
sible American  financial  group  to  enter  the  important  field  of  invest- 
ment in  China,  and  is  giving  to  the  enterprise  that  cordial  support  which 
the  Department  of  State  stands  ready  to  give  all  legitimate  and  bene- 
ficial American  commercial  and  financial  undertakings  in  foreign  coun- 
tries. Such  undertakings  are  to  be  encouraged  because  of  direct  benefit 
to  American  commerce  and  to  international' relations.  .  .  ."  See  Far 
Eastern  Review,  Nov.,  1909,  p.  317.  This  attitude  was  regarded  as  the 
outcome  of  the  so-called  "  Dollar  Diplomacy "  launched  by  Mr.  Taf  t. 
then  President  of  the  United  States,  and  Mr.  Knox,  then  Secretary  of 
State. 

2  In  the  same  official  statement  issued  in  Oct.,  1909,  from  Washington, 
the  United  States  Government  confessed  that:  "Although  American 
capitalists  did  not,  owing  to  the  financial  conditions  in  this  country,  find 
it  convenient  to  accept  the  British  invitation  to  cooperate  with  the 
British  and  French  groups  in  endeavoring  to  persuade  China  to  make 
the  foreign  loan  for  the  construction  of  the  Hankow-Szechuan  line,  it 
is  fortunate  that  before  the  negotiations  were  terminated  the  organiza- 
tion of  this  powerful  American  syndicate  has  made  it  possible  for 
China  to  fulfil  her  agreement  and  grant  to  the  U.  S.  participation  in 
this  loan  in  accordance  with  the  Waiwupu's  promise  of  1904."     Ibid. 


373]  INTERNATIONAL  CO-OPERATION  I45 

Fletcher,  was,  however,  very  energetic  in  making  representa- 
tion after  representation  to  the  Waiwupu  of  China's  obli- 
gations and  of  his  Government's  determined  attitude  to- 
ward  this  loan. 

On  the  other  hand,  the  European  diplomats  demanded 
an  early  ratification  of  the  loan  by  bringing  pressure  upon 
the  Grand  Councillor  to  memorialize  the  Throne.  Among 
them  the  British  Minister  was  especially  emphatic  in  his 
demands.  Mr.  Fletcher  warned  the  British  Minister  that 
his  action  would  disturb  the  cordial  relations  between  the 
United  States  and  Great  Britain.  The  newspapers  of 
Europe  and  America  then  made  a  great  outcry,  each  siding 
with  their  own  representative.  The  Europeans  accused  the 
United  States  of  having  allowed  the  European  countries 
to  do  all  the  hard  work,  then  at  the  last  moment  of  having 
claimed  a  share  in  the  reward  of  their  efforts  and  of  having 
delayed  the  negotiations  by  insisting  on  participation ;  while 
the  United  States  maintained  that  she  was  first  in  the  field 
for  this  particular  loan  and  had  on  three  separate  occasions 
between  January  and  April  of  the  year  1909  pointed  out 
to  British  banking  interests  that  the  American  banking 
group  had  a  desire  to  co-operate  in  this  loan,  and  that  on 
each  occasion  the  proffered  co-operation  had  been  declined 
by  them,  although  German  and  French  co-operation  was 
accepted  shortly  thereafter. 

China,  however,  realized  the  seriousness  of  the  situation. 
She  assured  the  American  Legation  of  her  postponement 
of  the  final  ratification  of  the  agreement.  The  Germans 
became  at  once  very  energetic  in  using  every  means  to  bring 
about  the  ratification  of  the  contract.  The  Washington 
Administration  under  Mr.  Taft  then  took  drastic  action 
by  sending  a  presidential  message  to  the  Prince  Regent  of 
China  emphasizing  American  rights,  employing  however 
only  friendly  terms.     The  Waiwupu  was  then  instructed 


I46  RAILWAY  PROBLEMS  IN  CHINA  [374 

to  open  negotiation  with  Mr.  Fletcher  for  the  admission 
of  American  capital  on  equal  terms  with  the  Europeans. 
On  August  17,  1909,  admission  of  American  capital  was 
definitely  accepted  and  the  loan  was  increased  from 
£5,500,000  to  £6,000,000,  the  four  groups  to  take  a  quarter 
each.  This  increase  meant  that  China  was  forced  to  bor- 
row £500,000  more  in  order  to  admit  the  United  States. 

When  it  seemed  that  everything  was  settled  additional 
troubles  arose.  Russia  and  Japan,  who  have  no  surplus 
capital  for  investment  in  foreign  lands,  also  insisted  upon 
a  share  in  the  loan  and  urged  a  further  increase  of  the  loan 
to  accommodate  them.  This  caused  another  diplomatic 
war  lasting,  however,  only  a  short  time. 

Furthermore,  negotiations  among  the  four  groups  who 
had  already  secured  the  concession  struck  another  obstacle 
and  from  that  there  resulted  a  further  delay  in  concluding 
the  final  agreement.  The  competing  countries  experienced 
great  difficulty  in  arranging  the  question  as  to  the  amount 
of  line  each  would  control  and  the  appointment  of  en- 
gineers who  could  influence,  in  favor  of  their  respective 
countries,  the  purchase  of  all  the  railroad  supplies  needed, 
thereby  originating  the  channel  of  future  commerce.  The 
Germans  were  accused  of  not  being  willing  to  yield  suffi- 
ciently to  the  other  Europeans  to  equalize  the  common  loss 
involved  by  the  American  participation.  On  the  other  hand, 
the  British  were  accused  by  the  Germans  and  French  of 
delaying  the  loan  for  petty  gains. 

Somehow,  however,  these  two  points  of  dispute,  i.  e., 
the  allotment  of  the  line  mileage  and  the  appointment  of 
engineers,  were  settled.  A  third  question  came  up — the 
question  of  appointing  purchasing  agents.  The  American 
Group,  knowing  the  national  prejudices  of  the  European 
engineers  in  awarding  tenders  and  the  past  record  of  the 
British  and  Chinese  Corporation  and  the  Deutsch-Asiatische 


375]  INTERNATIONAL  CO-OPERATION  147 

Bank  in  placing  orders  for  materials  regardless  of  the  pro- 
vision of  the  loan  agreements,  endeavored  to  secure  Ameri- 
can participation  in  the  appointment  of  a  purchasing  agent 
who  would  guarantee  a  square  deal  to  American  manufac- 
turers. Owing  to  the  refusal  of  the  British  and  German 
Groups  to  permit  any  change  in  the  wording  of  Clause  18 
of  the  original  agreement,  which  named  the  British  and 
Chinese  Corporation  and  the  Deutsch-Asiatische  Bank  as 
purchasing  agents  for  all  the  lines,  the  negotiations  between 
the  four  financial  groups  dragged  along  for  several  months 
more.  Finally  the  representative  of  the  American  Group 
was  induced  to  yield.  He  waived  the  right  to  appoint  an 
American  purchasing  agent  on  the  condition  that  the  British 
and  the  German  purchasing  agents  should  write  an  official 
letter  obligating  themselves  to  an  impartial  awarding  of 
tenders.  Thus  the  exclusive  purchasing  rights  for  the 
entire  system  including  the  American  section  were  con- 
ceded to  the  Deutsch-Asiatische  Bank  and  the  British  and 
Chinese  Corporation.  At  a  meeting  held  in  Paris  on  May 
23,  1910,  between  the  representatives  of  the  four  groups, 
an  inter-group  agreement  was  signed  providing  for  "  the 
receipt  of  or  an  absolute  basis  of  equality  of  tenders  from 
British,  German,  French  and  American  manufacturers."  a 
At  the  same  meeting  it  was  also  agreed  that  the  four  groups 
should  participate  equally  in  the  purchasing  commission, 
the  Deutsch-Asiatische  Bank  and  the  British  and  Chinese 
Corporation  receiving  one  per  cent  as  compensation  for  the 
actual  services  rendered,  and  the  other  4  per  cent  to  be 
equally  divided  between  the  four  groups.  Thus  the  con- 
tention between  the  several  leading  financial  groups  as  well 
as  their  respective  governments  was  brought  to  an  end. 

1  For  full  text  of  the  agreement,  see  Far  Eastern  Rez'iew,  vol.  viii, 
no.  3,  P-  83. 


I48  RAILWAY  PROBLEMS  IN  CHINA  [376 

During  the  period  of  this  contention,  the  seriousness  of 
the  international  turmoils,  coupled  with  the  ridiculous  pre- 
tensions of  Russia  and  Japan,  had  roused  the  fears  of 
China's  loyal  children  who  suspected  that  there  was  cruel 
design  behind  the  loan.  The  result  was  a  popular  opposi- 
tion to  placing  the  "  sovereign  rights  "  of  the  nation  in  the 
hands  of  foreigners. 

After  all  these  many  difficulties  had  been  overcome  the 
final  agreement *  was  signed  on  May  20,  191 1,  between  Mr. 
Sheng  Hsuan-huai,  the  Minister  of  Posts  and  Communi- 
cations and  the  representatives  of  the  Four  Nations'  Groups. 
The  world-famous  loan  is  called  "  The  Imperial  Chinese 
Government  Five  Per  Cent  Hukuang  Railway  Sinking  Fund 
Gold  Loan  of  191 1."  According  to  the  agreement  a  loan 
of  £6,000,000  was  floated  to  : 

1.  Redeem  certain  hitherto  unredeemed  gold  bonds  to 
the  total  par  value  of  gold  $2,222,000,  issued  by  the  Ameri- 
can China  Development  Company  on  behalf  of  the  Im- 
perial Chinese  Government. 

2.  (a)  Construct  a  Government  railway  main  line  from 
Wuchang,  the  capital  of  the  Hupeh  province,  through  Yo- 
chow  and  Changsha,  the  capital  of  Hunan  province,  to  a 
point  in  the  district  of  Yichang-hsien,  in  the  prefecture  of 
Chenchow,  of  the  southern  boundary  of  Hunan,  connecting 
with  the  Kwangtung  section  of  the  Canton-Hankow  railway 
line,  the  total  length  of  this  line,  to  be  known  as  the  "  Hupeh- 
Hunan  section  of  the  Canton-Hankow  railway  line,"  being 
an  estimated  distance  of  1,800  Chinese  li,  or  900  kilometres; 
(b)  and  a  Government  railway  main  line  from  a  point  at 
or  near  Kuangshui  in  the  Province  of  Hupeh,  connecting 
with  the  Peking-Hankow  railway  line  and  passing  through 

1  For  full  text  of  the  agreement,  see  Supplement  to  the  Far  Eastern 
Revieiv,  Aug.,  191 1. 


37j]  INTERNATIONAL  CO-OPERATION  149 

Hsiang-yang.  and  Chingmenchow  to  Ichang,  an  estimated 
distance  of  600  Chinese  li,  or  300  kilometres, — this  latter 
section  of  the  main  line  having  been  added  in  substitution 
for  the  branch  line  from  Chingmenchow  to  Hanyang  ori- 
ginally agreed  upon, — the  total  length  of  this  main  line, 
hereafter  known  as  the  "  Hupeh  section  of  the  Szechuan- 
Hankow  railway  line  "  being  about  1,800  Chinese  li,  or 
900  kilometres. 

The  agreement  provides  that  after  the  deduction  of  the 
amount  required  for  the  redemption  of  the  gold  bonds  the 
balance  of  the  loan  shall  be  solely  devoted  both  to  the  con- 
struction of  the  aforesaid  railway  lines,  including  the  pur- 
chase of  land,  rolling  stock  and  other  equipment,  and  also 
to  the  working  of  the  lines,  as  well  as  to  the  payment  of 
interest  on  the  loan  during  the  period  of  construction,  which 
is  estimated  at  three  years  from  the  actual  beginning  of  the 
work,  a  longer  period,  however,  being  allowed  for  the 
completion  of  the  section  from  Ichang  to  Kweichowfu  in 
consideration  of  the  engineering  difficulties  to  be  en- 
countered. 

In  the  agreement  it  was  also  stipulated  that  the  security 
for  the  loan  shall  be  the  general  Likin  of  Hupeh  province, 
amounting  to  Tls.  2.000,000  per  year;  the  Hupeh  additional 
salt  tax  for  river  defence,  amounting  to  Tls.  400,000  per 
year;  the  Hupeh  new  additional  2  cash  salt  tax  of  Septem- 
ber. 1908.  amounting  to  Tls.  250,000  per  year;  the  Hupeh 
collection  of  Hukuang  inter-provincial  tax  on  imported  rice, 
to  the  amount  of  Tls.  250.000  per  year ;  the  general  Likin 
of  Hunan,  amounting  to  Tls.  2,000,000  per  year;  the  Hunan 
Salt  Commissioner's  Treasury  regular  salt  Likin.  to  the 
amount  of  Tls.  250,000  per  year;  in  all  amounting  to  Tls. 
5,200,000  per  year.  In  case  of  default  in  the  payment  of 
principal  or  interest  of  the  loan,  Likin  and  other  suitable 
internal  revenues  of  the  Provinces  of  Hupeh  and  Hunan 


I50  RAILWAY  PROBLEMS  IN  CHINA  [378 

sufficient  to  provide  the  above-stated  amount  shall  be  trans- 
ferred to,  and  administered  by,  the  Imperial  Maritime 
Customs  in  the  interest  of  the  bondholders. 

The  duration  of  the  loan  is  forty  years.  Yearly  amorti- 
zation in  half-yearly  instalments  shall  commence  after  ten 
years  out  of  the  revenues  of  the  line,  or  such  other  re- 
venues as  the  Chinese  Government  may  think  lit  to  use  for 
the  purpose.  The  whole  outstanding  amount  of  the  loan 
may  also  be  redeemed  after  ten  years  from  the  date  of  the 
loan  by  paying  a  2^2  per  cent  premium  on  the  face  value  of 
the  bonds,  and  after  the  lapse  of  seventeen  years  without 
premium. 

The  price  of  the  bonds  to  China  was  95  per  cent  of  their 
nominal  value  with  5  per  cent  interest. 

The  construction  and  control  of  the  railway  lines  are 
entirely  and  exclusively  vested  in  the  Chinese  Government, 
in  addition  to  the  power  of  appointing  a  British  chief  en- 
gineer for  the  Hupeh-Hunan  section  of  the  Canton-Hankow 
railway  line  from  Wuchang  to  Yichanghsien ;  a  German 
chief  engineer  for  the  Kuangshui-Ichang  section  of  the 
Szechuan-Hankow  line;  and  an  American  chief  engineer 
for  the  section  of  that  line  from  Ichang  to  Kweichowfu. 
All  these  engineers  must  be  fully  qualified  and  acceptable 
to  the  banks  concerned. 

The  supervision  of  expenditures  and  the  control  of  the 
loan  funds  were  stipulated  in  a  manner  similar  to  the 
Tientsin-Pukow  terms. 

After  the  signing  of  the  agreement,  as  we  have  seen,  a 
revolution  broke  out.  which,  with  its  aftermath,  produced 
a  great  change  in  the  economic  condition  of  the  country 
and  the  value  of  the  securities  already  pledged.  The  ma- 
chinery of  tax  collection  was  dislocated.  Likin  collections 
fell  off  and  other  revenues  pledged  also  suffered.  The 
credit  of  the  native  banks  was  seriously  affected.     Progress 


379]  INTERNATIONAL  CO-OPERATION  I5I 

on  the  construction  work  was  completely  blocked.  These 
and  other  factors  persuaded  the  foreign  bankers  to  raise 
the  question  of  reconsidering  some  of  the  points  in  the 
agreement.  The  bankers  deemed  it  advisable  to  have  the 
security  revised,  the  arrangements  for  the  banking  of  funds 
reconsidered,  and  a  change  instituted  with  regard  to  the 
auditors.  Negotiations  were  re-opened  with  the  Minister 
of  Communications.  The  following  points  were  raised  and 
agreed  upon : 1 

i.  Additional  security.  The  property  and  materials  of 
the  lines  shall  be  specially  given  as  provisional  guarantee  that 
the  Likin  will  be  unimpaired. 

2.  Change  in  the  methods  of  transfer  of  loan  funds.  In 
Article  14  of  the  agreement  it  was  stipulated  that  the  trans- 
ferred funds  to  the  extent  of  one-half  of  the  net  balance 
of  the  loan  proceeds  might,  at  the  discretion  of  the  Ministry 
of  Posts  and  Communications,  be  deposited  with  the  Bank 
of  Communications  (Chiao-tung  Bank)  or  with  the  Taching 
Government  Bank,  the  Chinese  Government  declaring  itself 
responsible  for  all  the  funds  of  the  loan  deposited  with 
these  banks.  After  the  outbreak  of  the  Revolution  the 
above-mentioned  banks  and  the  Treasury  were  affected  and 
both  of  the  banks  failed  to  do  their  usual  business  with  the 
foreign  banks.  After  much  tedious  negotiation  it  was 
decided  that  the  loan  funds  should  be  deposited  temporarily 
with  the  Deutsch-Asiatische  Bank,  the  Hongkong  and 
Shanghai  Banking  Corporation,  the  Banque  de  lTndo-Chine, 
and  the  International  Bank  in  readiness  to  be  drawn  from 
time  to  time  as  required  for  the  work  until  such  time  as 
either  the  Chiao-tung  Bank  or  the  Taching  Bank  has  been 
reorganized  as  a  State  Bank  of  China  and  has  established 
its  credit,  and  business  relations  with  foreign  banks  have 

1  Far  Eastern  Review,  Mar.,  1913,  pp.  454-456. 


I52  RAILWAY  PROBLEMS  IN  CHINA  [380 

been  mutually  resumed.  When  such  time  comes  the  Gov- 
ernment may  consult  with  the  banking  groups  as  to  a  re- 
vision of  the  methods  of  transfer  laid  down  in  Article  14  of 
the  agreement  by  which  the  deposits  of  the  proceeds  of  the 
loan  funds  were  to  be  shared  with  the  Chiao-tung  Bank 
or  the  State  Bank  of  China  as  agents. 

3.  Change  in  the  keeping  of  accounts.  Article  14  of  the 
agreement  also  set  out  that  the  accounts  were  to  be  kept  in 
Chinese  and  English  in  accordance  with  accepted  modern 
methods,  and  were  to  be  supported  by  all  necessary  vouch- 
ers. Such  accounts  and  vouchers  were  to  be  open  for  in- 
spection, at  any  time  during  the  period  of  construction,  by 
the  auditors  engaged  by  the  banks.  This  was  deemed  by 
the  banks  to  be  an  insufficient  safeguard  in  view  of  the 
altered  conditions  in  the  country,  and  they  pressed  in  addi- 
tion for  the  appointment  of  qualified  accountants.  The 
banks  also  deemed  it  advisable  to  have  adequate  provision 
made  for  the  supervision  of  materials.  It  was  ultimately 
decided  that  China  should  herself  forthwith  engage  ex- 
perienced foreign  accountants  whose  dismissal  and  appoint- 
ment would  be  entirely  and  exclusively  controlled  by  the 
Chinese  Government.  It  was  also  agreed  that  the  Manag- 
ing Director  and  the  engineers-in-chief  of  the  respective 
sections  of  the  Hukuang  system  should  select  a  foreign 
engineer  to  be  stationed  at  the  store  yards  to  control,  super- 
vise and  record  the  materials.  In  the  event  of  damage, 
loss  or  misuse  the  Managing  Director  and  the  chief  engineer 
shall  be  held  responsible. 

Another  difficulty  encountered  by  the  Central  Govern- 
ment was  its  failure  to  secure  a  permanent  Director-General 
for  the  lines.1     This  was,  however,  soon  overcome.     When 

1  General  Huang  Hsing  and  Mr.  Tsen  Chen-hsuan  were  appointed 
successively  to  the  Post  of  Director-General  of  the  system.     Both  of 


381]  INTERNATIONAL  CO-OPERATION  ^3 

the  Central  Government  was  again  strongly  established  in 
Peking  and  the  country  became  pacified,  construction  work 
was  pushed  on  in  both  the  southern  and  the  western  lines. 

Special  conferences  were  then  held  between  the  chief 
engineers  and  accountants  of  the  lines  and  the  banks,  and 
regulations  were  drawn  up  and  agreed  to  by  the  Ministry 
of  Communications  for  the  proper  transference  and  dis- 
bursement of  the  loan  fund  and  provisions  taken  against 
waste  and  misappropriation. 

By  19 1 3-19 14,  an  arrangement  was  made  by  the  Chinese 
Government  with  the  four  banking  groups  for  the  extension 
of  the  Hupeh-Szechuan  railway  from  Kweichowfu,  via 
Chungking,  to  Chengtu,  the  capital  of  Szechuan  province, 
involving  the  construction  of  over  500  miles  of  lines.  It 
is  understood  that  the  financial  arrangements  will  be  equally 
shared  by  the  four  groups.  Details  had  not  yet  been  settled 
when  the  European  War  broke  out.  It  is  doubtless  the 
French  who  will  be  more  benefited  by  this  extension 
than  the  other  three  nationalities,  because  it  will  be  most 
probably  the  French  Banking  Group  who  will  be  given  the 
right  to  appoint  a  chief  engineer  for  this  section  of  the 
Hankow-Szechuan  road  as  they  were  not  given  that  privi- 
lege in  the  previous  agreement.  It  remains  to  be  seen, 
however,  how  the  present  war  will  affect  the  whole  system 
of  the  Hukuang  roads. 

Since  the  conclusion  of  the  Hukuang  Railway  Loan. 
China  has  contracted  several  other  important  railway  loans, 
understood  to  be  issued  on  practically  the  same  conditions 
as  the  Tientsin-Pukow  railway  loan.  The  most  significant 
of  these  are  the  Lung-Tsing-U-Hai  Railway,  the  Sinyang- 
Pukow  Railway  and  the  Shasi-Shingyifu  Railway  loans. 

them  were  later  implicated  in  the  Second  Revolution  and  fled  the 
country. 


I54  RAILWAY  PROBLEMS  IN  CHINA  [382 

The  Lang-Tsing-U-Hai  Railway  * 

In  1903  a  loan  contract  for  the  construction  of  a  railway 
from  Kaifengfu  to  Honanfu  (the  Pienlo  Railway)  in  the 
Province  of  Honan  was  made  between  the  Chinese  Govern- 
ment and  the  Compagnie  Generate  de  Chemins  de  fer  et  de 
Tramways  en  Chine.2     Article  23  stipulated : 

If  the  Compagnie  finishes  in  good  condition  the  work  of  the 
railway  from  Kaifengfu  to  Honanfu,  strictly  in  accordance 
with  all  the  clauses  of  the  present  contract,  in  this  case  and  if 
the  Chinese  Government  decides  to  extend  the  railway  from 
Honanfu  to  Si-ngan-fu,  the  Director-General  of  the  Imperial 
Chinese  Government  Railways  obligates  himself  to  agree  to 
a  preference  and  to  give  an  option  for  the  loan  required  for 
the  enterprise  to  the  Compagnie,  conformably  to  the  clauses 
and  conditions  of  the  present  contract. 

It  is  well  understood  that  if  the  Chinese  Government  is  able 
to  provide  the  necessary  capital  for  the  construction  of  the 
extension  from  its  own  resources  or  with  funds  raised  by  the 
subscription  of  its  own  nationals,  the  Compagnie  may  not 
benefit  by  this  Article. 

After  the  Revolution  the  Chinese  Government  decided  to 
extend  the  Pienlo  Railway  and  to  complete  the  Lotung  line, 
which  was  to  be  nationalized,  to  Lanchowfu,  capital  of 
Kansuh  province,  in  the  West,  and  to  Haichow  or 
Suchowfu  in  the  Kiangsu  province,  in  the  East.  The  Gov- 
ernment recognized  that  the  Compagnie  had  completed  in 
good  condition  the  construction  of  the  Pienlo  railway  and 
found  that  it  was  impossible  to  raise  capital  from  native 
sources.  It  decided,  therefore,  to  borrow  foreign  capital. 
The  Ministry  of  Communications  was  then  authorized  by 

1Far  Eastern  Review,  May.   1913,  p.  543   (for  sketch  of  the  road)  ; 
May,  1914,  p.  472;  Jan.,  1914,  pp.  293-296. 
2  Cf.  supra,  p.  79. 


383]  INTERNATIONAL  CO-OPERATION  1^ 

the  Presidential  Order,  dated  August  31,  191 3.  to  negotiate 
a  loan  with  the  Compagnie  Generale.  But  certain  clauses 
of  the  1903  contract  offered  serious  difficulties,  notably  the 
clause  admitting  the  Compagnie  to  a  participation  in  the 
future  profits  of  the  line.  After  some  negotiations  a  modi- 
fication was  attained.  It  was  agreed  that  certain  compen- 
sation should  be  granted  the  Compagnie  Generale  for  the 
abandonment  of  its  rights  previously  acquired  and  the  Gov- 
ernment received  to  itself  in  return  all  the  rights  and  ad- 
vantages arising  from  the  development  of  this  line  in  its 
entirety. 

In  September,  191 2,  the  loan  contract 1  was  signed  by  the 
Ministers  of  Communications  and  Finance  on  the  one  part, 
and  the  representative  of  the  Compagnie  Generale  on  the 
other.  The  authorized  amount  of  the  loan  was  to  be  250,- 
000,000  francs,  issued  at  94,  bearing  interest  at  5  per  cent. 
The  life  of  the  loan  is  forty  years.  Repayment  of  capital 
and  redemption  at  102^2  commence  ten  years  after  the 
issue  of  the  loan.  During  the  construction  the  interest  will 
be  paid  from  the  funds  realized  from  the  proceeds  of  the 
loan.  The  payment  of  interest  and  the  repayment  of  the 
loan  are  guaranteed  by  the  Chinese  Government  and  by  a 
special  guarantee  on  the  railway  which  constitutes  a  first 
lien  on  the  road  itself  and  its  attachments. 

The  Chinese  Government  will  be  in  sole  charge  of  the 
operation  and  direction  of  the  railway.  The  Director- 
General  and  the  chief  engineer  have  absolute  control  over 
all  expenditures  and  receipts  of  the  railway.  The  work  of 
constructing  the  railway  will  be  performed  under  the  su- 
preme direction  of  the  Director-General.  The  Director- 
General  and  the  Compagnie  shall  act  together,  conscien- 
tiously, in  choosing  an  engineer-in-chief  who  shall  be  either 

1  Far  Eastern  Review,  Jan.,  1913,  giving  full  text  of  the  agreement. 


156  RAILWAY  PROBLEMS  IN  CHINA  [384 

Belgian  or  French,  experienced  and  honest,  and  whose 
salary  shall  be  fixed  by  the  Director-General  with  the 
acquiescence  of  the  Compagnie.  All  estimates  and  speci- 
fications and  details  of  the  works  must  be  submitted  in  the 
first  place  to  the  Director-General  for  his  approval.  No 
Chinese  or  European  employees  can  be  engaged  without  the 
assent  of  the  Director-General.  The  chief  of  general  ac- 
counts, who  must  be  of  either  French  or  Beligian  national- 
ity, will  fill  at  the  same  time  (du  bon  emploi)  the  position 
of  Auditor.  He  will  be  named  by  the  Director-General  and 
confirmed  by  the  Compagnie.  He  will  sign  jointly  with 
the  representative  of  the  Director-General  all  the  checks 
drawn  and  all  responsible  documents.  Each  time  that  it 
becomes  necessary  to  appoint  technical  employees  for  the 
railway,  or  to  define  their  functions,  or  even  to  remove 
them,  the  Director-General  must  consult  with  the  engineer- 
in-chief  and  act  in  accord  with  him.  In  case  of  disagree- 
ment the  decision  of  the  Minister  of  Communications  will 
be  final.  The  engineer-in-chief  is  to  organize  a  European 
staff  for  the  construction  and  submit  it  to  the  Director- 
General  for  his  approbation — the  staff  comprising  the  chief 
of  services,  the  chief  of  section,  the  chief  of  the  account- 
ing bureau,  etc.,  who  are  to  be  engaged  by  the  Compagnie 
and  placed  under  the  order  of  the  engineer-in-chief. 

The  Compagnie  will  be  charged  during  all  the  time  of 
construction  with  the  supplying  of  everything  necessary 
for  the  construction  and  equipment  of  the  line  and  for  the 
needs  of  its  operation  except  such  Chinese  supplies  as  can 
be  procured  at  equal  price  and  of  equal  quality. 

Although  it  is  stated  in  the  agreement  that  the  Compagnie 
Generale  is  domiciled  in  Brussels,  yet  the  French  Yellow 
Book  for  1900  x  describes  it  as  a  Franco-Belgian  syndicate, 
indicating  that  French  interests  predominated.     The  pro- 

1  Cf.  supra,  p.  75,  foot-note. 


85] 


o°:> 


INTERNA  TIONAL  CO-OPERA  TION 


157 


ject  also  met  with  hearty  support  from  Russia  because  the 
line  when  completed  if  extended  a  little  further  westwards 
will  connect  with  Russia's  Asian  system,  and  constitute  a 
through  trunk  line  from  Central  Asia  to  the  heart  of  China 
and  thence  to  the  seacoast.  Furthermore,  the  Banque 
Sino-Belge,  for  which  M.  de  Vos  acted  as  representative 
as  well,  has  a  close  connection  with  the  Russian  banking 
group.1  Therefore,  it  may  be  said  that  Russian  interests 
have  also  probably  played  an  important  part  in  this  deal. 

This  line  traverses  the  poorest  and  most  desolate  districts 
in  China  proper.  Periodical  floods  often  throw  thousands 
of  the  people  into  starvation  and  disease.  This  railroad  will 
enable  the  Government  to  ameliorate  these  conditions  in 
the  future. 

From  the  political  and  military  point  of  view  the  line  is 
of  even  more  importance,  because  when  completed  it  will 
enable  China  to  control  her  north-western  provinces  more 
effectively  and  when  extended  in  the  future  it  will  facilitate 
the  colonization  of  Sinkiang  by  China. 

It  will  be  of  great  commercial  value  because  it  will  open 
a  deep-water  port  somewhere  between  Tsingtau  and  Shang- 
hai, in_ord£r  to  command  the  great  trade- routes  from  the 
central  provinces  to  the  sea,  thus  decreasing  the  dominating 
importance  of  Shanghai  and  Tsingtau  which  are  under  for- 
eign influence. 

The  Sinyang-Pukozv  Raihvay 

The  preliminary  agreement  for  the  concession  of  this  line 
was  signed  in  1899.  Not  until  November  14,  19 13,  was 
the  final  agreement2  duly  signed  by  the  Ministers  of  Com- 

1  See  Inter-Group  Agreement  for  the  Sextuple  Reorganization  Loan, 
in  Far  Eastern  Review,  Mar.,  1913,  pp.  439"44'  i  or  China  Year  Book, 
1914,  ch.  on  Finance. 

*  For  full  text  of  agreement,  see  Far  Eastern  Review,  Jan.,  1914,  pp. 
307-310. 


y 


158  RAILWAY  PROBLEMS  IN  CHINA  [386 

munications  and  Finance  on  the  one  part  and  the  represen- 
tative of  the  Chinese  Central  Railways,  Ltd.,  on  the  other 
part.  The  final  agreement  was  signed  as  a  purely  British 
undertaking,  providing  for  the  appointment  of  British  en- 
gineers and  the  purchase  of  materials  from  Great  Britain. 
But  as  a  large  percentage  of  the  shares  *  of  the  Chinese 
Central  Railways,  Ltd.,  are  held  in  France  and  Belgium, 
French  and  Belgian  partners  are  entitled  to  a  division  of  the 
profits.  The  French  and  Belgians  are,  however,  not  ad- 
mitted to  a  participation  in  the  allotment  of  purchase  of 
materials  and  appointment  of  engineers,  because  by  doing 
this  openly  the  truth  would  be  revealed  to  the  Chinese  Gov- 
ernment. Without  informing  China,  by  the  1905  inter- 
group  agreement 2  the  British  have  practically  transferred 
to  the  French  and  the  Belgians  a  part  of  their  rights  which 
the  British  Government  had  wrung  from  China  as  a  penalty 
for  signing  the  Peking-Hankow  loan  with  the  Belgians. 

The  terms  of  this  loan  agreement  practically  follow  the 
trend  of  the  Tientsin-Pukow  terms.  The  loan  is  called 
"  The  Chinese  Government  Five  Per  Cent  Pukow-Sinyang 
Railway  Loan."  It  provides  for  an  amount  of  £3,000,000 
to  construct  a  railway  line  from  a  point  on  the  Tientsin- 
Pukow  railway  (southern  section)  to  a  point  at  or  near 
Sinyang  on  the  Peking-Hankow  railway,  a  distance  of 
about  350  miles. 

The  duration  of  the  loan  is  forty  years.  Amortization 
will  commence  with  the  eleventh  year  from  the  date  of  the 
loan.  After  twenty  years  the  outstanding  amount  of  the 
loan  may  be  reduced  by  paying  £102^  for  each  £100  bond. 
The  loan  is  secured  by  a  specific  and  first  mortgage  upon  all 
lands,  materials,  rolling  stock,  buildings,  property  and  pre- 

1  Cf.  supra,  p.  141,  foot-note. 

2  Ibid. 


387]  INTERNATIONAL  CO-OPERATION  i~g 

mises  of  every  description  purchased  or  to  be  purchased  for 
the  railway,  and  on  the  railway  itself,  as  and  when  con- 
structed, and  on  the  revenues  of  all  description  derived 
therefrom.  This  provision  differs  from  that  of  the  Tientsin- 
Pukow  agreement  in  which  internal  revenues  and  Likins 
of  the  several  provinces  the  road  traverses  were  pledged  as 
security.  The  control  and  construction  of  the  railway  are 
vested  entirely  in  the  Chinese  Government. 

By  the  preliminary  agreement  dated  January  6,  1899, 
it  was  stipulated  that  the  terms  and  conditions  of  the  present 
agreement  should  be  subject  to  the  terms  and  conditions 
contained  in  the  final  agreement  concerning  the  Shanghai- 
Nanking  railway.  Article  12  of  the  Shanghai-Nanking 
agreement  provides  for  participation  by  the  lenders  in  the 
net  profits  of  the  road  after  certain  charges  have  been  met, 
to  the  extent  of  20  per  cent.  Net  profit  certificates  were  to 
be  issued  to  the  lenders  to  the  amount  of  20  per  cent  of  the 
nominal  capital  of  the  loan.  In  this  agreement  the  British 
waived  their  rights  under  the  old  preliminary  agreement  by 
retaining,  in  commutation  of  this  participation  in  net  profits, 
a  lump  sum  of  £120,000  out  of  the  proceeds  of  the  loan.  It 
is  also  provided  in  this  agreement  that  "  no  further  payment 
in  respect  of  commutation  of  profits  will  be  allowed  on  any 
supplementary  loans." 

The  Shasi-Shingyifu  Raihvay  ^ 

Aside  from  the  above  improvements  made  in  contracting 
foreign  loans  for  railway  construction,  China  has  also  made 
some  marked  progress  in  other  directions  by  adopting  what 
many  other  countries  have  used  in  carrying  on  important 
public  works,  i.  c,  the  "  percentage  contract  construction 

1  Far  Eastern  Review,  Dec,  1913,  pp.  248-9;  July,  1914,  p.  52;  Dec, 
1914,  pp.  220-224;  Jan.,  1915,  pp.  302-08. 


!6o  RAILWAY  PROBLEMS  IN  CHINA  [388 

system."  The  system  is  that  a  contract  is  made  by  the 
Government  with  an  experienced  contracting  party  (mostly 
engineering  firm  or  firms)  of  high  financial  standing  to 
finance  and  construct  a  railroad,  providing  that  a  certain 
percentage  of  profit  shall  be  allowed  by  the  Government  to 
the  contractor  over  the  actual  cost  of  construction  and 
equipment  and  that  the  Government  is  to  supervise  the  entire 
work  during  and  after  its  construction.  "  It  is  an  equitable 
system  for  carrying  on  large  public  works  where  it  is  im- 
possible to  make  an  accurate  estimate  at  the  time  of  entering 
into  a  contract." 

This  system  was  introduced  for  the  construction  of  this 
road.  The  Shasi-Shingyifu  railway  contract  is  a  modifica- 
tion of  the  one  signed  by  Dr.  Sun  Yat-sen  with  Lord 
French  on  July  4,  19 13,  providing  for  a  railway  between 
Canton  and  Chungking.1  Mr.  Rea,  Technical  Secretary 
of  the  Chinese  National  Railway  Corporation,  who  was 
entrusted  with  all  negotiations  for  loan  contracts  in  Europe 
by  Dr.  Sun,  took  to  himself  all  the  credit  of  introducing 
this  new  system  into  China.  Feeling  confident  that  the 
great  construction  firms  could  build  the  railways  more  "  eco- 
nomically and  expeditiously  "  than  could  the  individual  en- 
gineers nominated  by  the  official  banking  groups  under  the 
prevailing  departmental  system  in  which  the  bank  is  the 
principal  to  the  contract,  Mr.  Rea  decided  to  invite  the  large 
contracting  firms  of  high  financial  standing  to  participate  in 
the  development  of  Chinese  railways.  He  succeeded  in 
initiating  in  London  in  April,  191 3,  an  agreement  with 
Messrs.  Pauling  and  Company  for  the  construction  of  a 
line  from  Canton  to  Chungking  under  a  contract  in  which 
the  contractor's  profit  was  a  fixed  percentage  over  and  above 
the  actual  cost  of  construction  and  equipment  of  the  road. 

1  Cf.  supra,  p.  122. 


389]  INTERNATIONAL  CO-OPERATION  ^1 

After  the  dissolution  of  the  Chinese  National  Railway 
Corporation,  the  Government  refused  to  recognize  the  valid- 
ity of  any  agreement  entered  into  by  Dr.  Sun.  However, 
having  become  convinced  of  the  soundness  of  the  principle 
underlying  the  Canton-Chungking  railway  contract  of  rail- 
way construction  on  a  percentage  basis,  the  Government 
negotiated  another  agreement  for  the  Shasi-Shingyifu  line 
which  was  considered  of  more  political  importance  for  the 
present  than  the  Canton-Chungking  line.  The  Shasi- 
Shingyifu  railway  extends  from  a  point  near  the  city  of 
Shasi  on  the  Yangtsze  River,  in  the  Province  of  Hupeh, 
through  Lichow,  Changteh,  Shenchow,  Yuanchow,  Chen- 
yuan,  Kweiyang  and  Aushunfu  to  Shingyifu,  in  the  south- 
western corner  of  the  Province  of  Kweichow,  with  a  branch 
from  Changteh  to  Changsha,  the  capital  of  Hunan  province. 

On  July  25,  19 14,  the  final  agreement  was  signed  between 
the  Chiao-tung  Pu  and  Messrs.  Pauling  and  Company,  Ltd., 
for  a  loan  of  £10,000,000  at  five  per  cent  interest.  The  life 
of  the  loan  is  forty  years.  In  this  agreement  there  are 
several  points  which  do  not  appear  in  any  of  the  previous 
agreements,  viz. : 

1.  The  railway  is  to  be  constructed  by  contract. 

2.  The  Chinese  Managing  Director  is  to  co-operate  with  a 
firm  of  British  consulting  engineers  in  drawing  plans  and 
supervising  the  work. 

3.  A  firm  of  British  accountants  is  to  be  engaged  to  keep 
the  accounts  of  the  loan,  which  is  secured  on  the  railway 
and  the  properties  connected  therewith,  and  is  also  guaran- 
teed by  the  Government. 

4.  Specifications  and  costs  must  be  first  approved  by  the 
Chinese  authorities. 

By  inserting  such  an  arrangement,  in  addition  to  the 
other  advantageous  terms  stipulated  in  the  other  new  loan 


1 62  RAILWAY  PROBLEMS  IN  CHINA  [$g0 

contracts,  it  is  believed  that  China  can  control  and  supervise 
the  road  better  and  that  the  road  can  be  built  much  more 
economically  and  with  greater  efficiency  than  by  following 
the  usual  stringent  terms  of  the  old  departmental  system 
of  construction. 

Independent  firms  and  interests  (financiers  and  manu- 
/facturers)  had  been  debarred  for  many  years  by  the  official 
banking  groups  from  entering  the  field  in  China  for  the 
purpose  of  competing  in  railroad  building.  The  Shasi- 
Shingyifu  agreement  may  be  considered  as  the  first^  stroke 
against  the  monopoly  enjoyed  for  many  years  by  the  official 
banking  groups  and  enforced  by  them  from  time  to  time 
through  the  tactics  of  diplomacy  and  "  dirty  politics." 


CHAPTER  X 

The  Manchurian  Railway  Problems 

After  the  Russo-Japanese  War,  by  the  terms  of  the 
Portsmouth  Peace  Treaty  (September  5,  1905),  the 
Japanese  Government,  with  the  consent  of  the  Chinese  Gov- 
ernment, took  over  the  line  extending  from  Port  Arthur 
up  to  Kuangchengtze,  a  distance  of  508  miles,  together  with 
such  rights  connected  with  the  railway  as  had  been  conceded 
to  Russia.  On  December  22,  1905,  Baron  Komura,  then 
Japanese  Minister  at  Peking,  negotiated  a  convention — the 
Manchurian  Convention  1 — and  received  confirmation  from 
the  Chinese  Government  regarding  the  transfer  to  Japan 
by  Russia  of  Talienwan  and  Port  Arthur  and  all  rights  un- 
der the  lease  of  the  Liaotung  peninsula.  According  to  the 
Supplementary  Articles  of  the  Convention,  Japan  secured 
from  China  also  ( 1 )  the  right  to  construct  a  branch  line 
from  Mukden  to  Antung  (planned  to  connect  with  the 
Korean  trunk  line  at  the  terminus  of  Wiji,  opposite  to 
Antung  on  the  Yalu  River,)  and  (2)  the  right  to  partici- 
pate in  the  construction  of  a  second  branch  further  north, 
between  Kuangchengtze  and  Kirin. 

The  South  Manchuria  {Nanman)  Railway  System  ' 
After  this  railway  system  had  been  taken  over  by  Japan 

1  For  full  text  of  treaty  (translated  into  English),  see  Journal  of  the 
American  Asiatic  Association,  Feb.,  1006,  pp.  19-20. 

2  Far  Eastern  Review,  Feb.,  1909  (whole  issue)  ;  China  Year  Book, 
1912-1914,  Ch.  on  Communications;  Journal  of  the  American  Asiatic 
Association,  Dec,  191 1,  pp.  339-45- 

391]  163 


^4  RAILWAY  PROBLEMS  IN  CHINA  [392 

from  the  Russians,  under  the  Japanese  Imperial  Ordinance  x 
of  June  7,  1906,  the  South  Manchuria  Railway  Company- 
was  organized  with  an  authorized  capital  of  200,000,000 
yen  of  which  100,000,000  yen  were  paid  up  by  the 
Japanese  Government  and  20,000,000  yen  were  subscribed 
by  the  Mikado's  subjects,  i.e.,  the  actual  capital  of  the 
company  is  now  120,000,000  yens.  The  company  was 
formed  with  this  capital  for :  ( 1 )  taking  over,  developing 
and  operating  the  railways  already  constructed,  except  the 
Antung— Mukden  light  railway  and  its  accessories;  (2) 
improving  the  Nanman  and  the  Antung-Muken  railways 
with  the  exception  of  the  property  in  the  Leased  Territory 
which  should  be  specially  designated  by  the  Government; 
and  (3)  working  the  coal  mines  at  Fushun  and  Yentai. 

The  Japanese  Government  guarantees  the  payment  of 
interest  at  the  rate  of  6  per  cent  per  annum  on  the  paid-up 
capital  of  the  company  for  fifteen  years  after  the  registra- 
tion of  its  organization.  It  was  provided  that  the  subsidy 
shall  in  no  case  exceed  6  per  cent  of  the  paid-up  capital  and 
that  the  subsidy  with  an  interest  of  6  per  cent  shall  be 
made  a  liability  of  the  company  to  the  Government,  repay- 
able from  the  excess  of  the  company's  dividends  above  10 
per  cent  per  annum  on  all  shares. 

In  the  Japanese  Imperial  Ordinance,  it  was  provided  that 
the  South  Manchuria  Railway  Company  should  be  a 
Chinese- Japanese  organization  but  for  some  reason  the  peo- 
ple of  China  could  not  avail  themselves  of  the  opportunity 
to  buy  shares.  On  the  other  hand,  certain  branch  lines  and 
collieries,  notably  the  Yentai  and  Fushun  mines,  which  were 
Chinese  private  properties  although  a  certain  amount  of 
Russian  capital  was  invested  in  them,  were  listed  by  Japan 
as  the  property  of  the  South  Manchuria  Railway  Co. 

1  Journal  of  the  American  Asiatic  Association,  Oct.,  1906,  pp.  266-8. 


393]         THE  MANCHURIAN  RAILWAY  PROBLEMS  rf- 

As  the  result  of  the  intimate  association  of  the  company's 
organization  with  the  Japanese  Government  the  company 
has  assumed  various  functions  which  render  it  somewhat 
like  a  Colonial  Administration.     The  company  is  empow- 
ered :   ( i )   to  engage  in  mining,  marine  transport,  electric  "" 
works,  sales  in  consignment  of  the  principal  goods  carried 
by   rail,    warehousing  business,   and  construction   and   ad- 
ministration of  land  and  houses  on  the  land  belonging  to 
the  railway;  (2)  to  make  the  necessary  provisions  for  edu- 
cation, health,  and  engineering  work  within  the  limit  of  the 
land  belonging  to  the  railway;  (3)  to  collect  fees  from  in^"] 
habitants  within  the  limit  of  the  land  belonging  to  the  rail-  , 
way  from  which  to  defray  the  expense  for  the  items  quoted 
above. 

In  fulfilment  of  an  agreement  entered  into  in  June,  1907, 
with  the  Russian  Government,  the  railway  line  and  prop- 
erties to  the  south  of  Kuangchengtze  station,  together  with 
the  coal  mines  of  Shikpailing  and  Taochiatun,  as  well  as 
other  appurtenances,  were  formally  transferred  to  the  South 
Manchuria  Railway  Company,  between  July  15  and  July 
18,  1907. 

In  order  to  provide  the  necessary  funds  for  widening  the 
tracks  and  making  immediate  improvements  of  the  railway 
system,  the  company  has  issued  in  London  three  separate 
issues  of  debentures  of  a  total  amount  of  £8,000,000  at  the 
uniform  rate  of  interest  of  5  per  cent,  both  principal  and 
interest  being  guaranteed  by  the  Japanese  Government. 

In  April,  1907,  the  railway  had  already  been  re-opened 
to  traffic.  The  Russian  five-foot  gauge  on  the  southern 
section  of  the  Eastern  Chinese  Railway  had  been  reduced 
to  three  feet  six  inches,  during  the  war,  in  order  to  enable 
the  Japanese  military  engineers  to  operate  the  line  with 
rolling  stock  from  Japan,  where  the  railways  are  all  con- 
structed either  on  the  tf/t'  or  2^2'  model.     In   1908,  the 


1 66  RAILWAY  PROBLEMS  IN  CHINA  [394 

main  line  and  branches  (except  the  Antung-Mukden  branch) 
were  converted  from  the  narrow  gauge  to  the  standard 
guage  of  4  Sy2",  which  is  the  uniform  gauge  on  most  of  the 
railways  in  China. 

The  railway  is  protected  by  a  large  force  of  Japanese 
stationed  at  different  points  along  the  main  and  the  branch 
lines.  This  policing  administration  is  under  the  supervision 
of  the  Japanese  governor-general  of  the  Leased  Territory, 
who  has  charge  also  of  elaborate  postal  and  telegraph  sys- 
tems. Also,  the  Manchurian  Consular  Courts  have  civil 
jurisdiction  in  the  railway  settlement. 

The  South  Manchuria  railway  is  an  instrument  in  the 
hands  of  the  Japanese  Government  for  the  promotion  of 
exclusive  Japanese  interests  in  South  Manchuria.  Owing 
to  the  discrimination  and  rebates  of  rates  in  favor  of 
Japanese  firms  foreign  goods  other  than  those  of  Japanese 
manufacture  have  suffered  a  great  deal.  In  connection  with 
her  ownership  of  the  road  many  exclusive  privileges  were 
claimed  by  Japan  in  her  encroachment  upon  China's  sover- 
eign rights,  and  a  complete  repudiation  was  demanded  of 
the  "  open  door  "  doctrine  which  Japan  had  occasion,  time 
and  again,  to  declare  to  the  Powers. 

In  order  to  develop  the  terminal  of  the  road,  at  Dalny 
(Dairen),  in  the  Leased  Territory,  the  railway  company 
allowed  reduced  rates  to  the  shipper  who  shipped  his  goods 
through  Dalny.  Newchwang,  the  natural  port  of  Man- 
churia and  the  headquarters  of  foreign  firms  engaged  in 
the  Manchurian  trade,  is  thus  subject  to  a  severe  competition 
and  its  prosperity  dwindles.  This  is  a  case  not  unlike  the 
local  discrimination  so  often  found  in  the  United  States. 


395]         THE  MANCHURIAN  RAILWAY  PROBLEMS  rfy 

The  Antung-Mnkdcn  Railway  l 

This  road  was  originally  a  narrow  gauge  line,  hurriedly 
constructed  to  meet  the  military  exigencies  of  Japanese 
operations  during  the  struggle  with  Russia.  Under  Article 
VI  of  the  supplementary  agreement  to  the  Manchurian 
Convention  (December  22,  1905),  Japan  acquired  the  right 
to  improve  and  operate  this  line  for  a  period  of  eighteen 
years  from  the  date  of  the  agreement,  after  which  the 
Chinese  Government  may  purchase  the  line  at  a  price  to  be 
based  upon  an  appraisal  of  all  properties  by  a  foreign  ex- 
pert selected  by  both  parties. 

It  was  also  stipulated  in  the  same  Article  that :  ( 1 )  the 
conveyance  by  the  railway  of  the  troops  and  munitions  of 
war  of  the  Chinese  Government  prior  to  such  sale;  (2)  the 
despatching  of  a  Commissioner  by  China  who  was  to  be 
consulted  by  the  persons  undertaking  the  work  on  behalf 
of  Japan  in  regard  to  the  manner  in  which  the  improvements 
of  the  road  were  to  be  effected;  and  (3)  the  appointment 
of  another  Commissioner  to  look  after  the  business  relating 
to  the  railway,  shall  be  dealt  with  in  accordance  with  the 
regulations  of  the  Eastern  Chinese  Railway. 

Then  there  arose  a  controversy  over  the  interpretation 
of  the  agreement.  Viceroy  Hsi  Liang  of  Feng  Tien  pro- 
vince took  the  view  that,  although  the  treaty  provided  for 
the  improvement  of  the  road,  it  did  not  provide  for  its 
reconstruction,  and  what  China  meant  was  that  Japan  might 
repair  the  line  to  adapt  it  for  the  conveyance  of  goods  with- 
out any  change  of  gauge.  Japan  turned  a  deaf  ear  to  this 
argument  and  proceeded  at  once  to  begin  the  work  of  recon- 
struction. China  proposed  to  submit  the  matter  to  the 
Hague  for  adjudication.     Japan  refused. 

1  Far  Eastern  Review,  Nov.,  1009,  pp.  295-6;  Journal  of  the  American 
Asiatic  Association,  July,  1909,  pp.  183-4. 


1 68  RAILWAY  PROBLEMS  IN  CHINA  [396 

The  conversion  of  the  line  into  a  standard  gauge  was 
commenced  in  August,  1909,  and  was  completed  in  191 2. 
The  total  length  of  the  new  line  is  about  170  miles.  By 
the  completion  of  the  bridge  over  the  Yalu  River,  through 
communication  on  a  standard  gauge  from  Fusan  (in  Korea) 
to  Mukden  was  established.  The  road  is  operated  under 
the  management  of  the  South  Manchuria  Railway  Company. 
It  is  considered  a  foreign  railroad  because  its  status  is 
similar  to  that  of  the  Eastern  Chinese  Railway.  The  road 
is  of  great  commercial  and  political  importance. 

The  Hsinmintun-Mukden  and  Kirin-Changchun  Railways 

On  April  15,  1907,  an  agreement1  was  made  between 
China  and  Japan  for  the  repurchase  by  China  of  the  Hsin- 
mintun-Mukden railway  (3^2'  gauge  and  40  miles  long) 
constructed  by  the  Japanese  military  authorities  during  the 
Russo-Japanese  War,  by  paying  to  Japan  a  sum  of  gold  yen 
1,550,000,  a  portion  of  which,  representing  half  the  cost 
of  the  section  east  of  the  Liao  River,  is  to  remain  on  loan. 
In  the  same  agreement  it  was  provided  also  for  a  loan  from 
Japan  for  the  construction  of  the  Kirin-Chanchun  line  pro- 
jected by  China.  It  was  also  agreed  that,  with  the  exception 
of  the  periods  in  which  the  loans  are  to  be  repayable,  the 
conditions  of  these  loans  and  the  regulations  for  the  man- 
agement of  the  railways  shall  be  in  all  respects  similar  to 
those  of  the  loan  contract  of  the  railways  inside  and  outside 
Shanhaikwan.  The  most  important  conditions  are  as 
follows : 

1.  The  periods  in  which  the  loans  shall  be  repaid  shall 
be,  for  that  of  the  Hsinmintun-Mukden  line  east  of  the 
Liao   River,   eighteen  years,   and   for  that   of   the   Kirin- 

1  Chung  Hwa  Fa  Kwei  Tai  Tsueuen,  treaties,  vol.  xii,  leaves  33-37; 
Kent,  Ry.  Ent.  in  China,  app.  A,  no.  6. 


397]         THE  MANCHURIAN  RAILWAY  PROBLEMS  rfg 

Changchun  (Kuangchengtze)  line,  twenty-five  years.  No 
repayment  in  full  of  these  loans  shall  be  allowed  before  the 
expiration  of  the  periods  named. 

2.  The  security  for  the  loan  from  the  South  Manchuria 
Railway  Company  for  that  part  of  the  Hsinmintun-Mukden 
line  east  of  the  Liao  River  shall  be  the  real  property  of  the 
aforesaid  section  and  its  earnings.  The  security  for  the 
mercantile  shares  to  be  issued  by  the  Kirin-Changchun  Rail- 
way Administration,  as  well  as  for  the  loan  from  the  South 
Manchuria  Railway  Company,  shall  be  the  real  property  of 
the  railway  and  its  earnings. 

3.  The  loans  and  the  interest  thereon  are  guaranteed  by 
the  Chinese  Government. 

4.  During  the  period  of  the  loans  a  chief  engineer  and 
an  accountant  for  each  of  the  lines  shall  be  Japanese  and 
shall  act  with  the  Chinese  Director-General. 

5.  The  railways  mentioned  being  Chinese  Government 
lines,  this  government  shall  have  the  right  to  transport  sol- 
diers and  subsistence  over  each  line  free  of  charge,  when- 
ever military  affairs  or  measures  of  relief  shall  require. 

6.  All  earnings  of  the  railways  in  question  must  be 
deposited  in  Japanese  banks. 

On  November  12,  1908,  a  supplementary  agreement  ' 
was  concluded  providing  for  a  loan  of  320,000  yen  (half 
the  cost  of  the  section)  for  that  section  of  the  Hsinmintun 
line  east  of  the  Liao  River,  and  a  loan  of  2,150.000  yen 
(half  the  cost  of  the  line)  for  the  Kirin-Changchun  line, 
issued  at  93  and  bearing  interest  at  5  per  cent  respectively. 

The  tracks  of  the  Hsinmintun-Mukden  line  were  then 
converted  to  standard  gauge.  The  regular  management  of 
the  line  has  now  been  taken  in  charge  by  the  Administration 
of  the  Chinese  North  Railways. 

1  Kent,  op.  cit. 


1 70  RAILWAY  PROBLEMS  IN  CHINA  [398 

Construction  on  the  Kirin-Changchun  line  was  com- 
menced in  1910  and  completed  in  October,  1912.  It  is  about 
80  miles  in  length. 

It  is  planned  to  extend  the  Kirin-Changchun  line  to 
Hoiryong,  the  principal  town  of  Chientao,  a  distance  of  200 
miles.  When  completed  the  line  will  be  of  great  commercial 
and  strategical  value.  It  will  contribute  to  the  development 
of  commerce  between  China,  Korea  and  Japan.  The  con- 
ditions under  which  the  line  is  to  be  built  may  be  similar 
to  those  of  the  Kirin-Changchun  line. 

The  Attempt  to  Neutralise  the  Manchurian  Railways  1 

Thus  we  see  that  Manchuria  is  divided  into  three  railway 
spheres,  one  served  by  the  ..Chinese  Government  Railways 
of  North  China,  another,  which  expands  as  it  extends  north- 
ward into  Kirin  province,  by  the  Japanese  South  Manchuria 
railway  system,  and  a  third  by  ^Russia's  Chinese  Eastern 
Railway.  Russia  and  Japan  have  special  interests  in  North 
and  South  Manchuria  respectively.  When  China  at- 
tempted to  induce  foreign  capital  other  than  Japanese  and 
Russian  to  build  new  railways  there,  or  when  any  other 
nationality  wished,  itself,  to  invest  money  in  Manchuria 
for  railway  construction,  strong  protests  were  usually  met 
with  from  either  Russia  or  Japan  or  both. 

American  capitalists  have  taken  great  interest  in  Man- 
churian railway  affairs  because  American  commerce  had 
once  occupied  a  very  prominent  position  in  Manchuria. 
Immediately  after  the  Russo-Japanese  War,  the  late  Mr. 
E.  H.  Harriman,  the  American  railway  magnate,  concluded 
with  Marquis  Ito  and  Marquis  Katsura  a  memorandum  of 

1  Bland,  Recent  Events  and  Present  Policies  in  China,  passim.  Far 
Eastern  Review,  Apr.,  1910,  pp.  526-9;  Nov.,  1909,  pp.  228-9;  Feb.,  1909, 
pp.  294-9.  Jour,  of  the  Amer.  Asiatic  Assn.,  Feb.,  1910,  pp.  4-7;  Sept., 
1910,  pp.  232-243. 


399]         THE  MANCHURIAN  RAILWAY  PROBLEMS  tyj 

agreement  for  a  joint  American- Japanese  ownership  and 
working  of  the  South  Manchuria  Railway.  This  joint 
working  scheme,  to  be  financed  with  American  capital,  was 
to  form  a  link  in  Mr.  Harriman's  projected  round-the-world 
transportation  system.  But  when  the  Japanese  statesmen, 
fully  appreciating  the  tendency  of  world  politics  in  the 
future,  wanted  to  nullify  what  they  had  promised  Mr. 
Harriman,  they  put  the  blame  upon  the  Chinese  Govern- 
ment by  duly  informing  Mr.  Harriman  that  the  Chinese 
Government  would  not  consent  to  the  admission  of  Ameri- 
can capital  into  the  South  Manchuria  Railway  system,  since 
they  desired  themselves  to  join  the  Japanese  in  working  it. 
As  a  matter  of  fact,  China  was  kept  absolutely  ignorant  of 
Mr.  Harriman's  proposals.  Contrary  to  the  Japanese 
statements,  as  we  shall  see,  China  was  endeavoring  to  enlist 
American  capital  for  the  development  of  Manchuria. 

In  1906,  Russia  had  also  at  one  time  approached  Ameri- 
can capitalists  with  an  offer  to  sell  the  Chinese  Eastern 
Railway. 

In  August,  1907,  Mr.  T'ang  Shao-yi,  appointed  Governor 
of  Feng  Tien,  endeavored  to  enlist  the  active  sympathy  and 
support  of  the  United  States  and  Great  Britain  by  offering 
opportunities  for  railway  construction  to  American  and 
British  capitalists  and  contractors.  Mr.  T'ang  suggested 
to  Mr.  W.  Straight  (U.  S.  Consul-General  at  Mukden,  now 
president  of  the  American  Asiatic  Association)  that  a  Man- 
churian  Bank  with  American  capital  be  formed  to  act  as 
the  financial  agent  of  the  Government  of  Manchuria,  and. 
in  co-operation  with  Messrs.  Pauling  &  Company,  of  Lon- 
don, to  undertake  the  construction  of  a  line  from  Eisin- 
mintun  to  Aigun,  together  with  other  enterprises,  "  for  the 
development  of  commerce  and  industry  of  Manchuria."  with 
which,  under  the  Portsmouth  Treaty,  Russia  and  Japan  had 
agreed  not  to  interfere.  The  project  was  delayed  by  the 
financial  panic  of  1907  in  the  United  States. 


1 72  RAILWAY  PROBLEMS  IN  CHINA  [400 

After  the  panic,  in  the  summer  of  1908,  Mr.  Straight 
carried  with  him  to  Washington  a  memorandum,  signed  by 
the  Governor  of  Mukden,  which  was  to  form  the  basis  of 
negotiations  for  a  loan  of  £20,000,000,  for  the  establish- 
ment of  the  Manchurian  Bank.  Meanwhile,  an  agreement 
was  reached  between  Lord  French  representing  Messrs. 
Pauling  and  Company,  Mr.  J.  O.  P.  Bland  representing  the 
British  and  Chinese  Corporation,  and  the  Manchurian  Gov- 
ernment for  the  construction  of  a  railway  running  from 
Tsitsihar  to  Chinchow.  The  American  capitalists,  or, 
rather,  the  Manchurian  Bank,  was  to  undertake  the  exten- 
sion of  this  line  from  Tsitsihar  to  Aigun — the  total  length 
of  the  line  being  about  750  miles.  In  November,  before 
Mr.  T'ang's  arrival  at  Washington  to  discuss  in  person  the 
details  of  this  project,  besides  other  matters,  Messrs.  Kuhn, 
Loeb  and  Company  had  declared  to  the  State  Department 
their  willingness  and  readiness  to  finance  the  Manchurian 
Bank.  By  the  death  of  the  Emperor  Kuang-su  and  the 
Empress  Dowager,  Mr.  T'ang's  mission  failed,  because  of 
the  lack  of  support  from  the  Prince  Regent  who  dismissed 
Mr.  Yuan  Shi-kai  (then  Grand  Councillor),  the  chief  sup- 
porter of  Mr.  T'ang's  policies. 

In  December,  the  Russian  Government  again  opened  nego- 
tiations with  certain  New  York  bankers  for  the  sale  of  the 
Chinese  Eastern  railway,  provided,  however,  that  Japan 
would  agree  to  sell  the  South  Manchuria  railway.  Accord- 
ing to  Mr.  T'ang's  statements  China  would  welcome  such 
action  on  the  part  of  the  Russian  Government.  It  was 
hoped  that  an  international  syndicate  might  be  organized 
to  purchase  both  railways  on  behalf  of  the  Chinese 
Government. 

Mr.  Knox,  American  Secretary  of  State,  then  addressed 
simultaneously  the  Chinese,  British,  German,  Russian  and 
Japanese  Governments,  proposing  to  authorize  the  organi- 


4Ol]         THE  MANCHURIAN  RAILWAY  PROBLEMS  ij$ 

zation  of  an  international  syndicate  which  would  buy  i  >ut 
the  Russian  and  Japanese  railway  interests  in  Manchuria. 
At  the  same  time  Air.  Knox  also  suggested  to  the  govern- 
ments mentioned,  with  the  exception  of  Russia,  that  if  the 
Powers  were  unwilling  to  join  in  the  general  neutralization 
scheme  they  should  at  least  unite  in  financing  and  construct- 
ing the  Chinchow-Aigun  railway.  Learning  this  second 
proposal,  the  Russian  Government  suspected  that  the  Ameri- 
can Government  was  playing  a  double  game.  Russia  and 
Japan  then  politely  but  firmly  rejected  Mr.  Knox's  pro- 
posals. The  so-called  neutralization  scheme  of  Mr.  Knox 
thus  became  a  failure.  The  immediate  result  of  this  neu- 
tralization scheme  was  the  formation  of  the  Russo-Japanese 
entente  (agreement  signed  on  July  4,  1910)  to  divide  the 
Manchurian  and  Mongolian  interests  between  themselves. 

The  intentions  of  the  United  States  Government  were 
just.  Its  policy  aimed  at  "taking  the  railways  of  Man- 
churia out  of  Eastern  politics  and  placing  them  under  an 
economic  and  impartial  administration  by  vesting  in  China 
the  ownership  of  the  railways :"  in  other  words,  it  wished 
to  place  Manchuria  under  an  "  international  economic  pro- 
tectorate," pending  such  time  as  China  could  control  it  her- 
self independently.  Theoretically  it  seemed  to  be  a  fair  and 
satisfactory  arrangement  but  when  tried  in  practice  it  re- 
quired mutually  altruistic  aims  and  harmonious  relations 
between  the  Powers. 

Furthermore.  Mr.  Taft's  Administration  at  Washington 
erred  in  placing  the  Chinchow-Aigun  r<  >ad  in  the  same  cate- 
gory in  the  neutralization  scheme  as  the  Chinese  Eastern 
and  the  South  Manchuria  railways.  They  overlooked  the 
fourth  Article  of  the  Portsmouth  Treaty  in  which  Russia 
and  Japan  had  pledged  themselves  "not  t<>  obstruct  any 
general  measures,  common  to  all  countries,  which  China 
may  take  for  the  development  of  commerce  and  industry 


Ij4  RAILWAY  PROBLEMS  IN  CHINA  [402 

in  Manchuria."  By  this  Article  China  was  strictly  entitled, 
at  her  discretion,  to  construct  the  Chinchow-Aigun  line. 
For  China's  interests  the  two  questions  should  have  been 
treated  separately. 

When  the  neutralization  scheme  failed,  the  United  States 
proceeded  independently  in  the  matter  of  the  Chinchow- 
Aigun  railway.  But  the  Russo-Japanese  entente  had  al- 
ready become  effective.  Russia  denounced  the  Chinchow- 
Aigun  project  as  a  design  for  attacking  Russian  territories 
in  Eastern  Siberia  and  Russia's  "  special  interests  "  in 
Mongolia  and  Manchuria. 

On  the  other  hand,  when  the  Japanese  learned  that  nego- 
tiations for  the  loan  agreement  and  the  construction  con- 
tract were  in  progress,  their  Government  entered  an  em- 
phatic protest,  forbidding  the  Chinese  Government  to  ex- 
tend the  Imperial  Railways  northwards  from  Hsinmintun, 
basing  its  prohibition  on  the  Manchurian  Convention  of 
December  22,  1905,  asserting  that  the  extension  would  seri- 
ously compete  with  the  South  Manchuria  road.  Finally 
the  proposition  of  the  Chinchow-Aigun  project  also  failed. 

Judging  from  the  attitude  and  the  actions  of  the  Japanese 
Government  in  those  days,  one  need  not  have  waited  until 
the  outbreak  of  the  present  World  War  to  know  that  a 
•clash  between  China  and  Japan  in  regard  to  the  Man- 
churian railways  is  inevitable.  Japan  always  desired  to 
extend  the  life  of  the  lease  of  the  Peninsula  and  the  South 
Manchuria  railways.  Article  III  of  the  Port  Arthur  and 
Talienwan  agreement  of  March  27,  1898,  provided  that  the 
duration  of  the  lease  should  be  twenty-five  years,  and  Article 
VIII  provided  that  the  Chinese  Eastern  Railway  should 
revert  to  China  at  the  end  of  eighty  years  and  might  be 
repurchased  at  the  end  of  thirty-six  years.  By  the  Treaty 
of  Portsmouth,  as  we  have  pointed  out,  Russia's  rights 
were  transferred  to  Japan  and  were  officially  recognized  by 


403]         THE  MANCHURIAN  RAILWAY  PROBLEMS  xyc 

the  Chinese  Government  in  1905.  The  situation  is  this, 
namely,  that  in  1934,  nineteen  years  hence,  China  may  re- 
purchase the  line  at  its  actual  cost.  But  previous  to  this, 
in  1923,  or  eight  years  from  date,  the  lease  of  the  Liao- 
tung  Peninsula,  including  the  ports  of  Dalny  and  Port 
Arthur,  expires.  Japan's  policy  is  to  embark  on  various 
grand  schemes  of  development  and  expansion  so  that  she 
may  control  more  effectively  South  Manchuria.  But  she 
has  no  funds.  With  the  short-life  lease  she  cannot  negoti- 
ate in  the  financial  markets  of  the  world  the  necessary  loans 
for  the  improvement  of  Dalny  or  Port  Arthur.  It  is  plain, 
therefore,  that  Japan  must  receive  some  assurance  from 
China  that  the  lease  will  be  extended,  in  order  that  she  may 
secure  loans  abroad. 

The  World  War  gives  Japan  the  chance  to  achieve  her 
purposes.  Harsh  demands  are  sent  to  Peking.  Negotia- 
tions are  now  pending.  The  crisis  comes.  China's  sover- 
eign rights  and  integrity  and  the  principles  of  the  "  open 
door  "  have  been  and  are  unmistakably  threatened.  Shall 
China  yield  or  shall  she  fight?  Had  Mr.  Knox's  neutrali- 
zation scheme  been  successful,  such  serious  complication 
might  not  now  be  arising.  Granted  that  Japan  secures  what 
she  demands,  the  Manchurian  questions  which  have  become 
mixed  up  with  the  "open  door,"  equal  opportunities,  sover- 
eign rights,  etc.,  will  still  remain  to  be  solved.  Further 
dissensions  and  conflicts  (probably  armed  conflicts)  will  be 
inevitable. 


CHAPTER  XI 
Conclusion 

With  a  period  of  over  fifty  years  of  railway  development, 
China  now  has  only  5,980  miles  of  railway  in  operation  and 
a  little  over  2,000  miles  under  construction.1  In  comparison 
with  countries  such  as  the  United  States,  Argentina,  India, 
and  others,  the  progress  made  in  railway  construction  in 
China  has  been  exceedingly  slow,  especially  when  we  con- 
sider her  vast  territory  and  dense  population.  The  reasons 
are  many. 

Opposition 

At  the  very  beginning  when  there  was  very  little  foreign 
influence,  strong  opposition  to  foreign  improvements  and 
/national  antipathy  to  innovations  were  quite  common. 
Many  writers  attributed  these  objections  to  the  supersti- 
tious fear  of  trespassing  upon  ancestral  tombs.  This  super- 
stition, however,  has  slight  weight,  with  the  lower  and  more 
ignorant  classes  only.  Of  course,  there  exists  among  all 
people  in  the  world  a  strong  prejudice  against  any  innova- 
tion, but  this  prejudice  can  be,  and  has  been,  easily  over- 
come whenever  the  innovation  gains  official  support  and 
encouragement. 

The  opposition  to  railway  construction  from  the  educated 
''and   official   classes   deserves   more   serious   consideration. 

1  Up  to  the  early  part  of  1914,  China  Proper  has  5,980  miles  of  rail- 
way in  operation  and  2,065  miles  under  construction.     In  other  words, 
she  has  .03  miles  of  line  to  every  100  square  miles  of  country  and  .18 
miles  to  every  10,000  inhabitants.    China  Year  Book,  1914,  p.  215. 
176  [404 


405]  CONCLUSION  ijj 

Again,  here,  many  writers  have  blamed  the  short-sighted- 
ness of  these  classes  for  preventing  the  general  enlighten- 
ment of  the  country  in  order  that  they  might  retain  their 
own  prerogatives  and  power.  These  writers  overlook  the 
fact  that  the  social,  political  and  economical  systems  of 
China  have  been  fully  adjusted  and  were  crystallized  cen- 
turies ago.  Naturally,  it  is  not  to  be  expected  that  these 
people  would  adopt  without  hesitation  or  inquiry  the  West- 
ern systems  which  were  new  and  untried.  Of  course,  those 
officials  who  were  ultra-reactionary  in  tendency  and  who  dis- 
couraged the  introduction  of  railways  should  bear  the 
blame  for  delaying  the  progress  of  railway  construction. 

It  was  the  labor  question  which  brought  from  the  in-,  y? 
telligent  people  of  China  the  most  serious  objections  to  the 
introduction  and  development  of  rapid  transportation.  The 
railway  throws  the  old  means  of  transportation  into  disuse. 
It  was  feared  that  the  boatmen,  the  carters,  the  packmen, 
and  the  porters  would  be  deprived  of  their  means  of  sup- 
port and  existence.  This  fear  was  manifested  by  the  junk 
men  of  the  Peiho  River,  the  inhabitants  of  Tungchow,  and 
the  carters  of  Tientsin  and  Peking.  This  led  some  intelli- 
gent officials  and  merchants  to  the  belief  that  what  China 
needed  was  not  condensation  of  work  but  expansion;  in 
other  words,  not  an  increase  in  the  working  capacity  of  man 
by  substituting  machinery,  but  a  sufficiency  of  work  for  the 
normal  capacity  of  man's  unaided  hands.  This  may  be 
true  in  some  industries  in  China  but  not  in  railway  trans- 
portation. At  the  very  beginning  it  was  true  that  some  of 
the  boatmen,  carters,  and  others  were  affected,  as  in  the 
case  of  the  Government  Railways  of  North  China,  but  this 
was  soon  adjusted.  In  course  of  time  the  fears  of  the 
ruinous  competition  of  the  railway  were  found  groundless 
as  had  been  discovered  in  other  countries.  The  railway, 
instead  of  decreasing,  really  increased  the  employment  of 


178  RAILWAY  PROBLEMS  IN  CHINA  [4q6 

these  laborers  in  transporting  goods  at  higher  wages  by 
diversifying  and  developing  new  means  of  trade.  Now, 
hostility  from  these  people  who  are  still  making  their  liv- 
ing by  old  methods  of  transportation  has  practically  dis- 
appeared. 

In  some  cases,  however,  hostility  to  railways  was  caused 
by  the  shameful  maltreatment  of  the  laborers  by  the  for- 
eigners who  took  charge  of  the  actual  work  of  construction. 

There  was  also  complaint  that  the  people  were  not  will- 
ing to  part  with  their  land.  China  is  a  country  of  small 
landowners.  It  is  not  to  be  denied  that  it  requires  time  t<  > 
_^~  deal  with  them  in  order  to  obtain  the  necessary  land  for  the 
right  of  way,  but  this  difficulty  can  be,  as  it  has.  been,  ad- 
justed by  a  fair  valuation  and  honest  dealing. 

All  the  cases  of  opposition  were  found  to  arise  almost 
entirely  within  the  first  period  of  railway  development  in 
China.  Later,  when  the  people  became  more  familiar  with 
this  new  system  of  transportation,  almost  all  the  unreason- 
able objections  were  withdrawn. 

Hindrances 

It  is  the  problem  of  delay  in  railway  construction  that 
should  be  seriously  considered.  "  Dirty  politics,"  internal 
and  international,  has  been  the  chief  factor  causing  grievous 
retardation  to  railway  development  in  China.  Before  the 
demarcation  of  their  respective  spheres  of  interest,  each 
government  of  the  Powers  concerned  protested  against 
others'  activities  in  certain  parts  of  the  country  and  endeav- 
ored to  place  obstacles  in  the  way  of  any  enterprise  of  its 
opponents.  When  the  question  of  their  respective  spheres 
of  special  activities  in  different  fields  had  been  settled,  offi- 
cial banking  groups  were  designated  by  the  different  govern- 
ments to  exploit  the  country.  Each  group  had  practically 
a  monopoly  to  undertake  railway  construction.     Every  one 


4oy]  CONCLUSION  I79 

of  them  had  its  hands  too  full  of  concessions  which  were, 
therefore,  unduly  delayed  in  fulfilment.  The  unscrupulous 
concessionaires  took  advantage  of  a  weakened  government 
to  secure  more  than  their  due.  Naturally  an  awakened 
people  will  object  to  the  sacrifice  of  public  interests  under 
the  pretence  of  development;  hence  the  stubborn  hostility 
to  foreign  concessions,  and  hence  the  delay  in  almost  every 
case  by  months  and  even  by  years  of  the  conclusion  of  loan 
agreements. 

Working  hand  in  hand  with  these  political  groups  were 
the  so-called  syndicates,  speculators,  groups  of  men  and 
of  interests  primarily  not  associated  with  railway  construc- 
tion, coming  into  the  country  to  exploit  "  flowery  Chung 
Hwa,"  by  raising  to  an  absurd  figure  the  capital  cost  of  the 
railways  built.  According  to  Mr.  G.  B.  Rea's  analysis  of 
the  railway  situation  in  China,1  the  average  cost  of  railways 
built  under  foreign  loan  agreements  is  $45,000  gold  per 
mile,  while  serviceable  railways  can  be  constructed  and 
equipped  for  $20,000  to  $30,000  gold  per  mile  when  built 
without  foreign  interference. 

Furthermore,  the  Government  had  no  effective  control 
over  these  syndicates.  The  result  was  that  the  syndicates 
were  permitted  to_float  loans  without  first  submitting  to 
the  Government  definite  surveys  and  construction  tenders, 
which  would  have  afforded  a  check  on  capital  expenditures 

1  Mr.  Rea's  conclusion  of  his  famous  analysis  is  briefly  as  follows : 
China  could  more  than  double  her  railway  building  if  unmolested  in 
the  administration  of  her  affairs.  The  same  amount  of  money  would 
be  expended,  while  the  orders  to  foreign  manufacturers  for  cars,  loco- 
motives and  railway  supplies  would  be  doubled.  What  the  bankers, 
purchasing  agents,  and  staff  employees  would  lose  would  be  repaid  to 
the  foreign  manufacturers  ten  times  over,  and  in  the  end  bring  just  as 
much  profit  to  the  banks  as  though  they  held  out  for  the  continuance 
of  a  system  in  which  they  are  at  present  the  greatest  beneficiaries. 
Far  Eastern  Review,  Nov.,  1909,  pp.  215-227. 


180  RAILWAY  PROBLEMS  IN  CHINA  [40g 

and  would  have  made  the  concessionaires  and  not  the  Gov- 
ernment liable  for  any  expenditure  not  expressly  specified 
in  the  final  agreement.  All  the  above  hindrances  were 
chiefly  caused  by  the  international  jealousies  of  the  great 
commercial  Powers  and  the  short-sightedness  of  the  for- 
eign financiers. 

We  now  come  to  the  internal  retarding  forces  which 
have  blocked  the  progress  of  the  railway,  and  which  should 
be  more  seriously  taken  into  consideration  than  the  external 
forces.  First  of  all,  we  find  the  enormous  defects  of  the 
old  order  of  things,  the  constant" change  of  policies  and 
the  vacillation  of  the  old  Government,  xausingHrr-kating 
friction  with  the  people.  The  outcome  of  these  was  the 
hot-headed  agitation  against  foreign  enterprises  and  gov- 
ernment ownership  of  railways.  Such  an  extreme  attitude, 
assumed  by  the  radical  elements  of  the  people,  destroyed  that 
mutual  confidence  which  is  so  necessary  to  progress  and 
naturally  retarded  the  very  process  of  evolution  or  develop- 
ment in  railway  as  well  as  in  other  industries. 

This  unsettled  state  of  affairs  in  the  country  accounts 
'for  a  great  deal  of  the  delay  in  railway  construction.  The 
famines,  the  brigandage  and  the  frequent  rebellions,  as  re- 
sultants of  the  economic  pressure,  the  over-population  and 
the  lack  of  food  supply,  have  been  the  chief  causes  of  un- 
rest in  the  country.  These  things  paralyze  the  commerce 
and  industry  of  a  country,  put  the  people  in  destitution  and 
absorb  the  surplus  energy.  One  of  the  results  of  this  busi- 
ness paralysis  was  the  lack  of  capital  for  investment  in  the 
railways,  hence  the  failure  of  the  private  enterprises;  an- 
other result  was  the  loss  of  revenues  and  credit,  hence  the 
Government  had  to  accept  foreign  loans  under  humiliating 
conditions,  and  hence  its  reluctance  to  launch  any  new  or 
large  railway  enterprise. 

The  people  of  China  possess  mental  power  of  organiza- 


409]  CONCLUSION  jgj 

tion.  Their  habits  of  thinking  systematically  and  of  act- 
ing methodically  lead  directly  to  organized  effort.  The 
mutual  aid  associations,  the  temperance  societies,  and  the 
secret  social  fraternities  are  notable  illustrations  of  this  or- 
ganized effort.  Above  all,  they  have  the  more  definite  com- 
mercial and  labor  combinations.  The  provincial  clubs  or 
"  guilds  "  are  organized  to  control  the  market,  regulate 
prices  and  avoid  cut-throat  competition.  The  labor  com- 
bines are  formed  to  promote  the  interest  of  the  working- 
men.  But  the  deficiency  of  skilled  workmen  and  profes- 
sional experts  in  every  line  of  modern  improvements,  the 
virtual  absence  of  the  modern  mechanism  of  money  and 
stock  exchanges,  and  the  ignorance  of  new  corporation  sys- 
tems have  tied  the  hands  of  many  vigorous  railway  prpo- 
moters,  entrepreneurs  and  financiers. 

Dangers 

The  aggressive  policy  (the  policy  of  economic  and  geo- 
graphical gravitation)  of  Russia  and  Japan  as  the  outgrowth 
of  military  aristocracy  in  those  lands,  has  caused  clashes 
and  hostility  between  these  powers  and  other  countries  who 
have  interests  in  the  Orient.  We  have  seen  that  by  a  series 
of  exceedingly  shrewd  moves,  Russia  had  secured  predomi- 
nant influence  in  Peking,  had  extended  her  railways  into 
Manchuria,  had  assumed  virtual  control  over  a  large  part 
of  its  territory,  and  thus  had  led  to  the  great  war  in  the 
Far  East  at  the  dawn  of  this  century.  After  the  revolt  of 
the  Khalka  Mongol  princes,  Russia  again  manifested  her 
"  forward  policy,"  inaugurated  by  the  Russo-Japanese  en- 
tente (July  4,  1910),  by  demanding  the  autonomy  of  Mon- 
golia, by  making  loans  at  the  same  time  to  the  provisional 
government  of  North  Mongolia  and  by  securing  provisions 
for  railway  construction  in  that  vast  region.     After  Japan 


lS2  RAILWAY  PROBLEMS  IN  CHINA  [410 

and  Russia  united  to  veto  the  proposed  construction  of  the 
Chinchow-Aigun  railway,  the  Russians  suggested  at  once 
to  the  Chinese  Government,  as  an  alternative  scheme,  the 
construction  by  China  of  a  railroad  from  Kalgan  to  Urga 
with  the  intention  of  connecting  with  the  Siberian  Railway 
via  Kiakhta,  thus  shortening  the  distance  between  Irkutsk 
and  Peking  by  about  800  miles.  This  is  no  doubt  a  costly 
and  strategic  undertaking.  Russia  wanted  China  to  do  it. 
What  was  her  intention?  She  intended  to  repeat  the  same 
old  trick  she  had  played  in  Manchuria.  In  addition  to  this 
scheme  the  Russian  Government  has  also  cherished  the  idea 
of  constructing  railways  from  Taskkent  to  Kashgar,  and 
from  Bisk  to  Chuguchak.  By  means  of  these  prospective 
railways  Russia  aims  to  secure  the  geographical  and  eco- 
nomic gravitation  of  North  Mongolia  and  possibly  the 
New  Dominion. 

Japan  wants  to  stay  permanently  in  Manchuria.     She  has 
adopted  the  well-known  colonization  method  of   "  peace- 
1  /  ful  penetration  "  by  making  use  of  the  railway  and  the 

bank.  Her  uncompromising  veto  of  the  Chinchow-Aigun 
project  and  her  present  unreasonable  demands,  as  the  out- 
come of  the  World  War,  which  she  has  pressed  upon  China, 
prove  conclusively  that  Japan  is  determined  not  only  to 
close  the  door  to  equal  opportunities  in  South  Manchuria 
but  also  to  prevent  the  establishment  of  any  vested  interests 
other  than  her  own  throughout  the  Chung  Hwa  Republic. 
The  ambitious  and  unscrupulous  statesmanship  of  the  mili- 
tary-aristocratic class  of  the  Japan  people  has  made  Japan 
a  formidable  factor  in  international  diplomacy.  She  at- 
tempts to  undermine  the  influence  and  the  interests  of  other 
Powers  in  China.  Can  she  do  it  single-handed?  Here  is 
the  danger  of  a  possible  future  conflict — a  conflict  sure  to 
cause  humiliation  to  China. 

Railway  loans  floated  by  China  have  in  the  past  gener- 


41 1  ]  CONCLUSION  !g3 

ally  received  a  government  guarantee  and  have  been  se- 
cured by  first  mortgages  or  by  the  pledge  of  provincial 
revenues  as  security.  The  proposed  hypothecation  of 
China's  internal  revenues  for  the  loans  has  involved  im- 
portant political  complications*  Whenever  internal  dis- 
turbances may  arise  or  whatever  other  unforeseen  causes 
may  come  up  to  impair  the  due  payment  of  interest  or  the 
repayment  of  principal.  China's  sovereignty  will  be  at  stake. 

General  References 
(For  the  Third  Period) 
I. — Official  Publications: 

China:  Imperial  Maritime  Customs;   III.  Miscellaneous  Series  no.   3. 

China,  Treaties,  Shanghai,  1908. 

Chinese  Texts,  same  as  in  the  Second  Period. 

Great    Britain:    British  Blue   Book,    China,    1902-1912;    and   desultory 

Consular  Reports. 
The  United  States:  Monthly  Consular  Reports,  1904-1915. 
Anderson    (Geo.   E.),   Railway  Situation   in    China,    Special   Consular 

Reports,  no.  48.     (Washington,  D.  C,  1911.) 

II. — Treatises: 

Blakeslee  (G.  H.),  editor,  Recent  Developments  in  China,  New  York. 
1913,   Clark  University  addresses,   Nov.,   1912. 

Bland  (J.  O.  P.),  Recent  Events  and  Present  Policies  in  China,  Phila- 
delphia, 1912. 

Brunnert  (H.  S.)  and  Hagelstrom  (V.  V.),  Present  Day  Political  Or- 
ganisation of  China,  translated  into  English  from  Russian  by  Belt- 
chenko  (A.)  and  Moran   (A.  A.),  Shanghai,  1912. 

Comite  de  l'Asie  Franchise,  Guides  Madrolle,  Chine  du  Sud,  and  Chine 
du  Nord,  Paris,  1904. 

Denby  (Hon.  Charles),  China  and  Her  People,  Boston,  1906,  vol.  ii, 
chs.  xvii  and  xviii. 

Gibson  (Rowland  R.),  Forces  Mining  and  Undermining  China,  New 
York,  1914,  chs.  vi-x. 

Hosie  (Alexander),  Manchuria,  London,  1901,  chs.  ii-iv. 

Jernigan  (T.  R.),  China's  Business  Methods  and  Policy,  London    1004. 

Laboulaye  (Eduard  de),  Les  Chemins  de  fer  de  Chine,  Paris,  191 1. 

Maurer  (J.  H.),  The  Far  East,  Reading,  1912. 


^4  RAILWAY  PROBLEMS  IN  CHINA  [4I2 

Morse  (H.  B.),  The  Trade  and  Administration  of  the  Chinese  Empire, 

London,  1908,  chs.  vii-x  (rev.  ed.,  1913). 
Pott  (F.  L.  H.),  The  Emergency  in  China,  New  York,  1913. 
Reinsch    (P.   S.),  Intellectual  and  Political  Currents  in  the  Far  East, 

New  York,  191 1. 
Simpson  (B.  L.),  The  Coming  Struggle  in  Eastern  Asia,  London,  1908, 

pt.  ii-iii. 
The  China  Year  Book   (Bell  &  Woodhead),  New  York  and  London, 

1912-1914. 

III. — Articles: 

Bary  (A.  J.),  "  Railway  Development  in  China,"  in  Soc.  of  Art.  lour., 

London,  1909,  vol.  57,  pp.  541-560. 
Dillon   (E.  J.),  "  New  China  and  the  Re-grouping  of  the  Powers,"  in 

Contemporary  Review,  May,  1912,  pp.  714-36. 

"  Dual  Alliance  for  the  Far  East,"  ibid.,  July,  1910,  pp.  107-19. 

"Russia  and  China,"  ibid.,  Mar.,  191 1,  pp.  374-9. 

— — '  "  Ex  criente  lux ;  ex  occidente  Knox,"  ibid.,  April,   1910,  pp.  492- 

503. 

Lapeyriere  (J.  de),  "  Notice  sur  les  Chemins  de  fer  en  Chine,"  in  Soc. 

de  Geog.  Commerciale  de  Paris,  1908,  vol.  30,  pp.  338-49. 
Lawton  (L.),  "  The  Powers  and  the  Far  East,"  in  Fortnightly  Review, 

May,  191 1,  pp.  817-838. 
Maybon    (Albert),   "Les   Chemins  de   fer  chinois,"  in  Nouvelle  Rev. 

(Paris,  1907),  vol.  165,  pp.  202-216. 
Millard  (T.  F),  "America  in  China,"  in  Forum,  July,  1910. 

"Our  Blundering  Diplomacy  in  the  Far  East,"  in  American  Mag- 
azine, July,  1910,  pp.  817-825. 

Read  (T.  T.),  "China's  Great  Problem,"  in  Po pillar  Science  Monthly, 

Nov.,  1912,  pp.  457-464. 
Weale  (P.),  "One  Solution  of  the  Manchurian  Problem,"  in  Annals  of 

the   American  Academy   of  Political   and  Social   Science,"   Jan., 

1912,  pp.  39-55. 

IV.  — Per  io  dicals : 

The  Far  Eastern  Reviezv,  Shanghai,  1908-1915. 

The  Journal  of  the  American  Asiatic  Association,  New  York,  1905-1915. 


VITA. 


The  author  was  born  in  Canton,  China,  September,  1885. 
He  attended  the  Tangshan  Railway  and  Mining  College, 
North  China,  from  1906  to  1910,  when  he  was  sent  by  the 
Government  to  the  United  States  to  study.  He  attended 
the  University  of  Illinois,  receiving  the  B.  S.  degree  from 
that  institution  in  1912.  He  studied  Economics  at  the  Uni- 
versity of  Pennsylvania  during  the  year  191 2- 13,  doing 
seminar  work  with  Professor  E.  R.  Johnson.  He  received 
the  M.  A.  degree  from  Pennsylvania  in  19 13.  As  a  student 
of  the  Department  of  Political  Economy  at  Columbia  Uni- 
versity, 19 13-15,  he  studied  under  Professors  Seligman, 
Clark,  Seager,  Mussey,  Chaddock,  Giddings,  Tenney, 
Robinson  and  Hirth,  working  in  the  seminars  of  Professors 

Seligman  and  Seager. 

18s 


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